1933 Act Registration No. 033-16905
1940 Act Registration No. 811-05309
As filed with the Securities and Exchange Commission on December 17, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 90 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 90 [X]
FIRST AMERICAN INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
800 Nicollet Mall
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 303-7987
(Registrant's Telephone Number, including Area Code)
Richard J. Ertel
U.S. Bancorp Center
800 Nicollet Mall, BC-MN-H05F
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] on (date) pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[ ] on (date)) pursuant to paragraph (a)(2) of Rule 485.
December 17, 2007
PROSPECTUS
First American Investment Funds, Inc.
ASSET CLASS - STOCK FUNDS
GLOBAL INFRASTRUCTURE FUND
Class A and Class Y Shares
As with all mutual funds, the Securities and
Exchange Commission has not approved or
disapproved the shares of this fund, or determined
if the information in this prospectus is accurate
or complete. Any statement to the contrary is a
criminal offense.
(FIRST AMERICAN FUNDS LOGO)
TABLE OF
CONTENTS
FUND SUMMARY
Introduction 1
Objective and Principal Investment Strategies 2
Principal Risks 3
Fund Performance 5
Fees and Expenses 6
MORE ABOUT THE FUND
Investment Strategies and Other Investment Matters 7
POLICIES AND SERVICES
Purchasing, Redeeming, and Exchanging Shares 8
Managing Your Investment 16
ADDITIONAL INFORMATION
Management 18
FOR MORE INFORMATION Back Cover
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Fund Summary
INTRODUCTION
This section of the prospectus describes the objective of the First American Global Infrastructure Fund, summarizes the principal investment strategies used by the fund in trying to achieve its objective, and highlights the risks involved with these strategies. It also provides you with information about the performance, fees, and expenses of the fund.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF U.S. BANK NATIONAL ASSOCIATION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THIS PROSPECTUS AND THE RELATED STATEMENT OF ADDITIONAL INFORMATION (SAI) DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES IN THE FUND, NOR SHALL ANY SUCH SHARES BE OFFERED OR SOLD TO ANY PERSON IN ANY JURISDICTION IN WHICH AN OFFER, SOLICITATION, PURCHASE, OR SALE WOULD BE UNLAWFUL UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
THE FUND MAY BE OFFERED ONLY TO PERSONS IN THE UNITED STATES. THIS PROSPECTUS SHOULD NOT BE CONSIDERED A SOLICITATION OR OFFERING OF FUND SHARES OUTSIDE THE UNITED STATES.
Fund Summary
Objective and Principal Investment Strategies
OBJECTIVE
Global Infrastructure Fund's objective is long-term growth of capital and income.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, Global Infrastructure Fund invests primarily (at least 80% of its net assets, plus the amount of any borrowings for investment purposes) in equity securities issued by U.S. and non-U.S. infrastructure-related companies. Infrastructure-related companies are defined as companies that derive at least 50% of their revenues or profits from the ownership, development, construction, financing or operation of infrastructure assets, or have at least 50% of the fair market value of their assets invested in infrastructure assets. Infrastructure assets are the physical structures and networks upon which the operation, growth and development of a community depends, which includes water, sewer, and energy utilities; transportation and communication networks; health care facilities, government accommodations, and other public service facilities; and shipping, timber, steel, alternative energy, and other resources and services necessary for the construction and maintenance of these physical structures and networks. Equity securities in which the fund invests include common and preferred stocks, publicly-traded units of master limited partnerships (MLPs), real estate investment trusts (REITs), and exchange-traded funds and other investment companies. The fund may also gain exposure to MLPs through investment in exchange-traded notes whose returns are linked to indices that track the performance of MLPs. The fund may invest in companies of any size.
In selecting securities, the fund's advisor invests in companies that it believes meet one or more of the following criteria:
- attractively valued relative to other companies in the same industry or
market.
- strong fundamentals, including consistent cash flows or growth and a sound
balance sheet.
- strong management teams.
- long-term contracts to provide infrastructure-based services.
- an identifiable catalyst that could increase the value of the company's stock
over the next one or two years.
The fund's advisor generally will sell a security if any of the following has occurred:
- the security has hit its price target and the company is no longer
attractively valued relative to other companies.
- the company's fundamentals have significantly deteriorated.
- there has been a significant change in the management team.
- a catalyst that could decrease the value of the stock has been identified, or
a previously existing positive catalyst has disappeared.
- a better alternative exists in the marketplace.
Under normal market conditions the fund will invest significantly (between 50-75% of its net assets) in infrastructure-related securities that trade in markets other than the United States. These securities are generally issued by companies:
- that have their legal residence in countries other than the United States and
the securities of which are principally traded in such countries, or
- that derive at least 50% of either their revenues or their pre-tax income from
activities outside of the United States.
The fund diversifies its investments among a number of different countries throughout the world.
Up to 25% of the fund's total assets may be invested in equity securities of emerging market issuers. A country is considered to be an "emerging market" if it is defined as such by Morgan Stanley Capital International Inc.
The fund may utilize put and call options on securities, stock indices, and/or foreign currencies; stock index, interest rate and currency futures contracts; options on futures contracts; and forward foreign currency exchange contracts ("derivatives"). The fund may use these derivatives to manage market or business risk, enhance the fund's return, or hedge against adverse movements in currency exchange rates. The use of derivatives is speculative if the fund is primarily seeking to enhance return, rather than offset the risk of other positions. When the fund invests in a derivative for speculative purposes, the fund will be fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative's cost.
Fund Summary
Principal Risks
The value of your investment in this fund will change daily, which means you could lose money. The principal risks of investing in this fund include:
Active Management Risk. The fund is actively managed and its performance therefore will reflect in part the advisor's ability to make investment decisions which are suited to achieving the fund's investment objective. Due to its active management, the fund could underperform other mutual funds with similar investment objectives.
Additional Expenses. The fund's investment in exchange-traded funds and other investment companies involves additional expenses that would not be present in a direct investment in these underlying funds.
Common Stock Risk. Stocks may decline significantly in price over short or extended periods of time. Price changes may occur in the market as a whole, or they may occur in only a particular country, company, industry, or sector of the market. In addition, the types of stocks in which the fund invests, such as value stocks and growth stocks, may underperform the market as a whole.
Derivative Instrument Risk. The use of derivative instruments, such as options, futures contracts, and options on futures contracts, exposes the fund to additional risks and transaction costs. Risks inherent in the use of derivative instruments include: the risk that securities prices will not move in the direction that the advisor anticipates; an imperfect correlation between the price of derivative instruments and movements in the prices of the securities being hedged; the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than the fund's initial investment in that instrument; and the risk that the counterparty will fail to perform its obligations, which could leave the fund worse off than if it had not entered into the position. If the fund uses derivative instruments and the advisor's judgment proves incorrect, the fund's performance could be worse than if it had not used these instruments.
Emerging Markets Risk. The risks of international investing are particularly significant in emerging markets. Investing in emerging markets generally involves exposure to economic structures that are less diverse and mature, and to political systems that are less stable, than those of developed countries. In addition, issuers in emerging markets typically are subject to a greater degree of change in earnings and business prospects than are companies in developed markets.
Foreign Currency Hedging Transaction Risk. In order to hedge against adverse movements in currency exchange rates, the fund may enter into forward foreign currency exchange contracts. If the advisor's forecast of exchange rate movements is incorrect, the fund may realize losses on its foreign currency transactions. In addition, the fund's hedging transactions may prevent the fund from realizing the benefits of a favorable change in the value of foreign currencies.
International Investing Risk. The fund invests significantly in equity securities that trade in markets other than the United States. The fund may also invest in American Depositary Receipts, European Depositary Receipts, and Global Depositary Receipts, which, unless otherwise noted below, are subject to the same risks as other foreign securities. The holder of an unsponsored depositary receipt may have limited voting rights and may not receive as much information about the issuer of the underlying securities as would the holder of a sponsored depositary receipt. International investing involves risks not typically associated with U.S. investing. These risks include:
Currency Risk. Because the foreign securities in which the fund invests, with the exception of American Depositary Receipts, generally trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund's net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the fund.
Foreign Securities Market Risk. Securities of many non-U.S. companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. Securities of companies traded in many countries outside the U.S., particularly emerging markets countries, may be subject to further risks due to the inexperience of local investment professionals and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. In addition, non-U.S. stock exchanges and investment professionals are subject to less governmental regulation, and commissions may be higher than in the United States. Also, there may be delays in the settlement of non-U.S. stock exchange transactions.
Foreign Tax Risk. The fund's income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the fund also may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties tax. To the extent foreign income taxes are paid by the fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. See the SAI for details.
Information Risk. Non-U.S. companies generally are not subject to uniform accounting, auditing, and financial reporting standards or to other regulatory requirements that apply to U.S. companies. As a result, less information may be available to investors concerning non-U.S. issuers. Accounting and financial reporting standards in emerging markets may be especially lacking.
Investment Restriction Risk. Some countries, particularly emerging markets, restrict to varying degrees foreign investment
Fund Summary
Principal Risks CONTINUED
in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.
Political and Economic Risks. International investing is subject to the risk of political, social, or economic instability in the country of the issuer of a security, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, and nationalization of assets.
Infrastructure Sector Risk. Because the fund concentrates its investments in infrastructure-related securities, the fund has greater exposure to adverse economic, regulatory, political, legal, and other changes affecting the issuers of such securities. Infrastructure-related businesses are subject to a variety of factors that may adversely affect their business or operations, including high interest costs in connection with capital construction programs, costs associated with environmental and other regulations, the effects of economic slowdown and surplus capacity, increased competition from other providers of services, uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. Additionally, infrastructure-related entities may be subject to regulation by various governmental authorities and may also be affected by governmental regulation of rates charged to customers, service interruption and/or legal challenges due to environmental, operational or other mishaps and the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards. There is also the risk that corruption may negatively affect publicly-funded infrastructure projects, especially in emerging markets, resulting in delays and cost overruns.
Master Limited Partnership (MLP) Risk. An MLP is an investment that combines the tax benefits of a limited partnership with the liquidity of publicly-traded securities. The risks of investing in an MLP are generally those involved in investing in a partnership as opposed to a corporation. For example, state law governing partnerships is often less restrictive than state law governing corporations. Accordingly, there may be fewer protections afforded investors in an MLP than investors in a corporation. Investments held by MLPs may be relatively illiquid, limiting the MLPs' ability to vary their portfolios promptly in response to changes in economic or other conditions. MLPs may have limited financial resources, their securities may trade infrequently and in limited volume, and they may be subject to more abrupt or erratic price movements than securities of larger or more broadly-based companies. The fund's investment in MLPs also subjects the fund to the risks associated with the specific industry or industries in which the MLPs invest. Additionally, since MLPs generally conduct business in multiple states, the fund may be subject to income or franchise tax in each of the states in which the partnership does business. The additional cost of preparing and filing the tax returns and paying the related taxes may adversely impact the fund's return on its investment in MLPs.
The fund's investment in exchange-traded notes (ETNs) linked to the performance of MLPs exposes the fund to the risks associated with a direct investment in MLPs. In addition, ETNs are not principal protected and do not guarantee coupon payments. At maturity or upon sale or redemption, the fund may receive less than the principal amount invested in an ETN.
Mid-Cap Stock Risk. While stocks of mid-cap companies may be slightly less volatile than those of small-cap companies, they still involve substantial risk. Mid-cap companies may have limited product lines, markets or financial resources, and they may be dependent on a limited management group. Stocks of mid-cap companies may be subject to more abrupt or erratic market movements than those of larger, more established companies or the market averages in general.
Real Estate Investment Trust (REIT) Risk. REITs are publicly traded corporations or trusts that invest in, and/or operate, residential or commercial real estate. The fund may invest in equity, mortgage, or hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive their income primarily from rents and capital gains or real estate appreciation. Mortgage REITs invest the majority of their assets in real estate mortgage loans and derive their income primarily from interest payments. Hybrid REITs combine the characteristics of equity REITs and mortgage REITs. Equity REITs will be affected by changes in the values of and incomes from the properties they own, while mortgage REITs may be affected by the credit quality of the mortgage loans they hold. REITs are subject to other risks as well, including the fact that REITs are dependent on specialized management skills which may affect their ability to generate cash flow for operating purposes and to make distributions to shareholders or unitholders. REITs may have limited diversification and are subject to the risks associated with obtaining financing for real property.
A U.S. domestic REIT can pass its income through to shareholders or unitholders without any tax at the entity level if it complies with various requirements under the Internal Revenue Code. There is the risk that a REIT held by the fund will fail to qualify for this tax-free, pass-through treatment of its income. Similarly, REITs formed under the laws of non-U.S. countries may fail to qualify for corporate tax benefits made available by the governments of such countries.
By investing in REITs indirectly through a fund, in addition to bearing a proportionate share of the expenses of the fund, you will also indirectly bear similar expenses of the REITs in which the fund invests.
Fund Summary
Principal Risks CONTINUED
Small-Cap Stock Risk. Stocks of small-cap companies involve substantial risk. These companies may lack the management expertise, financial resources, product diversification, and competitive strengths of larger companies. Prices of small-cap stocks may be subject to more abrupt or erratic movements than stock prices of larger, more established companies or the market averages in general. In addition, the frequency and volume of their trading may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling the stocks of small-cap companies at the desired time and price. Stocks at the bottom end of the capitalization range in which the fund may invest sometimes are referred to as "micro-cap" stocks. These stocks may be subject to extreme price volatility, as well as limited liquidity and limited research.
Fund Performance
Because the fund has not been offered prior to the date of this prospectus, no performance information is presented.
Fund Summary
Fees and Expenses
As an investor, you pay fees and expenses to buy and hold shares of the fund. You pay shareholder fees directly when you buy or sell shares. You pay annual fund operating expenses indirectly since they are deducted from fund assets.
---------------------------------------------------------------------------------- SHAREHOLDER FEES(1) (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS Y ---------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (as a percentage of offering price) 5.50%(2) None MAXIMUM DEFERRED SALES CHARGE (LOAD) (as a percentage of original purchase price or redemption proceeds, whichever is less) 0.00%(3) None ---------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) (as a percentage of average net assets) ---------------------------------------------------------------------------------- Management Fees 0.90% 0.90% Distribution and/or Service (12b-1) Fees 0.25% None Other Expenses(4) 0.74% 0.74% Total Annual Fund Operating Expenses(5) 1.89% 1.64% Less Fee Waivers(6) (0.64)% (0.64)% Net Expenses(6) 1.25% 1.00% -------------------------------------------------------------------------------------- |
EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 for the time periods indicated, that your investment has a 5% return each year, and that the fund's operating expenses remain the same. The example assumes that contractual fee waivers were in effect throughout the first year of each period indicated (i.e., the entire period for the 1 year period), but were discontinued for the balance of periods longer than 1 year. Although your actual costs and returns may differ, based on these assumptions your costs would be:
CLASS A CLASS Y
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1 year $670 $102
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3 years $1,053 $455
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(1)An annual account maintenance fee of $50 may be charged under certain circumstances. See "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Accounts with Low Balances."
(2)Investors may qualify for reduced sales charges. See "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Determining Your Share Price -- Class A Shares -- Reducing Your Sales Charge on Class A Shares."
(3)Class A share investments of $1 million or more on which no front-end sales charge is paid may be subject to a 1% contingent deferred sales charge.
(4)Other Expenses are based on estimated amounts for the current fiscal year.
(5)Total Annual Fund Operating Expenses do not include securities lending income received by the advisor. The advisor receives fees of up to 25% of the fund's net income from securities lending transactions in connection with the lending services it provides the fund.
(6)The advisor has contractually agreed to waive fees and reimburse other fund expenses through at least December 31, 2008 so that total annual fund operating expenses do not exceed 1.25% for Class A shares and 1.00% for Class Y shares. Fee waivers and expense reimbursements will not be terminated prior to that time without the approval of the fund's board of directors.
More About the Fund
Investment Strategies and Other Investment Matters
OBJECTIVE
The fund's objective, which is described in the "Fund Summary" section, may be changed without shareholder approval. If the fund's objective changes, you will be notified at least 60 days in advance. Please remember, there is no guarantee that the fund will achieve its objective.
INVESTMENT STRATEGIES
The fund's principal investment strategies are discussed in the "Fund Summary" section. These are the strategies that the fund's investment advisor believes are most likely to be important in trying to achieve the fund's objective. This section provides information about some additional non-principal strategies that the fund's investment advisor may use to achieve the fund's objective. You should be aware that the fund may also use strategies and invest in securities that are not described in this prospectus, but that are described in the Statement of Additional Information (SAI). For a copy of the SAI, call Investor Services at 800 677-FUND.
Temporary Investments. In an attempt to respond to adverse market, economic, political, or other conditions, the fund may temporarily invest without limit in cash and in U.S. dollar-denominated high-quality money market instruments and other short-term securities, including money market funds advised by the fund's advisor. Being invested in these securities may keep the fund from participating in a market upswing and prevent the fund from achieving its investment objectives.
PORTFOLIO TURNOVER
Fund managers may trade securities frequently, resulting, from time to time, in an annual portfolio turnover rate of over 100%. Trading of securities may produce capital gains, which are taxable to shareholders when distributed. Active trading may also increase the amount of commissions or mark-ups to broker-dealers that the fund pays when it buys and sells securities.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the fund's policies and procedures with respect to the disclosure of the fund's portfolio securities is available in the fund's SAI.
Policies and Services
Purchasing, Redeeming, and Exchanging Shares
GENERAL
You may purchase, redeem, or exchange shares of the fund on any day when the New York Stock Exchange (NYSE) is open, except that shares cannot be purchased by wire transfer on days that federally chartered banks are closed. Purchases, redemptions, and exchanges may be restricted in the event of an early or unscheduled close of the NYSE, as permitted by the Securities and Exchange Commission (SEC).
The fund has authorized certain investment professionals and financial institutions ("financial intermediaries") to accept purchase, redemption, or exchange orders on its behalf. Your purchase or redemption price will be based on the net asset value (NAV) per share next calculated by the fund after your order is received by the fund or an authorized financial intermediary in proper form. Exchanges are also made at the NAV per share next calculated by the fund after your exchange request is received in proper form. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Calculating Net Asset Value" below. To make sure your order is in proper form, you must follow the instructions set forth below under "Purchase, Redemption, and Exchange Procedures."
Some financial intermediaries may charge a fee for helping you purchase, redeem, or exchange shares. Contact your financial intermediary for more information. No such fee will be imposed if you purchase shares directly from the fund.
CHOOSING A SHARE CLASS
The fund issues its shares in Class A and Class Y shares -- with each class having a different cost structure. As noted below, only certain eligible investors can purchase Class Y shares of the fund, whereas Class A shares (the "Retail Share Class") are generally available to investors. You should decide which share class best suits your needs.
Eligibility to Invest in Class Y Shares
CLASS Y SHARES are offered to group retirement and employee benefit plans and to certain persons who are charged fees for advisory, investment, consulting or similar services by a financial intermediary or other service provider. Such persons may include, but are not limited to, individuals, corporations, and endowments.
Class Share Overview
Contingent Deferred
Front-End Sales Sales Charge Annual 12b-1 Fees
Charge (FESC) (CDSC) (as a % of net assets)
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Class A 5.50%(1) None(2) 0.25%
Class Y None None None
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(1)The FESC is reduced for larger purchases. See "Determining Your Share
Price -- Class A Shares" below.
(2)Class A share investments of $1 million or more on which no FESC is paid may
be subject to a 1% CDSC.
Class Y shares are generally a better choice than Class A shares if you are eligible to purchase this share class.
DETERMINING YOUR SHARE PRICE
Class A Shares
Your purchase price for Class A shares is typically the net asset value of your shares, plus a front-end sales charge. Sales charges vary depending on the amount of your purchase. The sales charge you pay may differ slightly from the amount set forth below because of rounding that occurs in the calculation used to determine your sales charge.
Sales Charge
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As a % As a %
of of Net
Offering Amount
Purchase Amount Price Invested
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Less than $50,000 5.50% 5.82%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1 million and over 0.00% 0.00%
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Reducing Your Sales Charge on Class A Shares. As shown in the preceding table, larger purchases of Class A shares reduce the percentage sales charge you pay. In determining whether you are entitled to pay a reduced sales charge, you may aggregate certain other purchases with your current purchase, as follows.
Prior Purchases. Prior purchases of Class A shares of any First American Fund, and Class B and Class C shares of First American funds offering such share classes, (except, in any case, a money market fund) will be factored into your sales charge calculation. You will receive credit for the current net asset value of the other Class A, Class B, and Class C shares you hold at the time of your purchase, including shares held in individual retirement, custodial or personal trust accounts. For example, let's say you're making a $10,000 investment and you already own other First American Fund Class A shares that are currently valued at $45,000. You will receive credit for the
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
current value of these shares and your sales charge will be based on a total purchase amount of $55,000. If the current net asset value of your shares is less than their original purchase price, you may receive credit for their original purchase price instead, but only if you provide a written request to the fund and provide it with the records necessary to demonstrate the shares' purchase price.
Purchases by Related Accounts. Concurrent and prior purchases by certain other accounts of Class A shares of any First American Fund, and Class B and Class C shares of First American funds offering such share classes, (except, in any case, a money market fund) also will be combined with your purchase to determine your sales charge. The fund will combine purchases made by you, your spouse or domestic partner, and your dependent children when it calculates the sales charge, including purchases in individual retirement, custodial and personal trust accounts.
Letter of Intent. If you plan to make an aggregate investment of $50,000 or more over a 13-month period in Class A shares of one or more First American Funds, or Class B or Class C shares of First American funds offering such share classes, other than the money market funds, you may reduce your sales charge for Class A purchases by signing a non-binding letter of intent. If you do not fulfill the letter of intent, you must pay the applicable sales charge. In addition, if you reduce your sales charge to zero under a letter of intent and then sell your Class A shares within 18 months of their purchase, you may be charged a contingent deferred sales charge of 1%. See "Class A Share Investments of Over $1 Million" below.
It is your responsibility to determine whether you are entitled to pay a reduced sales charge. The fund is not responsible for making this determination. To receive a reduced sales charge, you must notify the fund at the time of the purchase order that a quantity discount may apply to your current purchase. If you purchase shares by mail, you must notify the fund in writing. Otherwise, simply inform your financial intermediary, or Investor Services if you are purchasing shares directly from the fund, and they will notify the fund.
You should provide your financial intermediary with information or records regarding any other accounts in which there are holdings eligible to be aggregated, including:
- all of your accounts at your financial intermediary.
- all of your accounts at any other financial intermediary.
- all accounts of any related party (such as a spouse or dependent child) held with any financial intermediary.
You should keep the records necessary to demonstrate the purchase price of
shares held in these accounts since neither the fund and its transfer agent nor
your financial intermediary may have this information.
More information on these ways to reduce your sales charge appears in the SAI.
Purchasing Class A Shares Without a Sales Charge. The following persons may purchase the fund's Class A shares at net asset value without a sales charge:
- directors, advisory board members, full-time employees and retirees of the advisor and its affiliates.
- current and retired officers and directors of the fund.
- full-time employees of any broker-dealer authorized to sell fund shares.
- full-time employees of the fund's counsel.
- members of the immediate families of any of the foregoing (i.e., a spouse or domestic partner and any dependent children).
- persons who purchase the fund through "one-stop" mutual fund networks through which the fund is made available.
- persons participating in a fee-based program sponsored and maintained by a registered broker-dealer.
- trust companies and bank trust departments acting in a fiduciary, advisory, agency, custodial or similar capacity.
- group retirement and employee benefit plans.
You must notify the funds or your financial intermediary if you are eligible to purchase Class A shares without a sales charge.
Reinvesting After a Redemption. If you redeem Class A shares of a First American Fund (except money market fund shares on which you have not paid a sales charge), you may reinvest in Class A shares of that fund or another First American Fund within 180 days without a sales charge. To reinvest in Class A shares at net asset value (without paying a sales charge), you must notify the fund directly in writing or notify your financial intermediary.
Class A Share Investments of Over $1 Million. There is no initial sales charge on Class A share purchases of $1 million or more (including purchases that reach the $1 million level as a result of aggregating prior purchases and purchases by related accounts). However, your financial intermediary may receive a commission of up to 1% on your purchase. If such a commission is paid, you will be assessed a contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18 months. The CDSC you pay may differ slightly from this amount because of rounding that occurs in the calculation used to determine your CDSC. To find out whether you will be assessed a CDSC, ask your financial intermediary.
The CDSC is based on the value of your shares at the time of purchase or at the time of redemption, whichever is less. The charge does not apply to shares you acquired by reinvesting your dividend or capital gain distributions. To help lower your costs, Class A shares that are not subject to a CDSC will be redeemed first. The CDSC will be waived in the circumstances described below under "Waiving Contingent Deferred Sales Charges."
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
Additional Information on Reducing Sales Charges. A link to information regarding the fund's Class A sales charge breakpoints is available on the fund's web site at www.firstamericanfunds.com.
Waiving Contingent Deferred Sales Charges
CDSCs on Class A share redemptions will be waived for:
- redemptions following the death or disability (as defined in the Internal Revenue Code) of a shareholder.
- redemptions that equal the minimum required distribution from an IRA or other retirement plan to a shareholder who has reached the age of 70 1/2.
- redemptions through a systematic withdrawal plan, at a rate of up to 12% a year of your account's value. The systematic withdrawal limit will be based on the market value of your account at the time of each withdrawal.
- redemptions required as a result of over-contribution to an IRA plan.
Class Y Shares
Your purchase price for Class Y shares is their net asset value. This share class does not have a front-end sales charge or a CDSC.
12B-1 FEES
The fund has adopted a plan pursuant to Rule 12b-1 under the Investment Company Act that allows the fund to pay its distributor an annual fee for the distribution and sale of its shares and/or for services provided to shareholders. The fund pays an annual 12b-1 shareholder servicing fee of 0.25% on Class A shares, as a percentage of the fund's average daily net assets attributable to Class A shares. The fund does not pay a 12b-1 distribution fee on Class A shares. The fund does not pay 12b-1 fees on Class Y shares.
Because 12b-1 fees are paid out of the fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
COMPENSATION PAID TO FINANCIAL INTERMEDIARIES
The fund's distributor receives any front-end sales charge or CDSC that you pay and any 12b-1 fees paid by the fund. From this revenue, the distributor will pay financial intermediaries for the services they provide. The fund's advisor and/or distributor may make additional payments to intermediaries from their own assets, as described below under "Additional Payments to Financial Intermediaries."
Sales Charge Reallowance
The distributor pays (or "reallows") a portion of the front-end sales charge on Class A shares to your financial intermediary, as follows.
Maximum Reallowance
as a % of
Purchase Amount Purchase Price
-----------------------------------------------------
Less than $50,000 5.00%
$50,000 - $99,999 4.00%
$100,000 - $249,999 3.25%
$250,000 - $499,999 2.25%
$500,000 - $999,999 1.75%
$1 million and over 0.00%
|
Sales Commissions
There is no initial sales charge on Class A share purchases of $1 million or more, however, your financial intermediary may receive a commission of up to 1% on your purchase.
12b-1 Fees
The fund's distributor uses the 12b-1 shareholder servicing fee to compensate financial intermediaries for administrative services performed on behalf of the intermediaries' customers. These intermediaries receive shareholder servicing fees of up to 0.25% of the fund's Class A share average daily net assets attributable to shares sold through them. The distributor begins to pay shareholder servicing fees to these intermediaries immediately after you purchase shares. The intermediaries continue to receive these fees for as long as you hold fund shares.
Additional Payments to Financial Intermediaries
The advisor and/or the distributor may pay additional compensation out of their own resources to selected intermediaries for the purposes of promoting the sale of fund shares, maintaining share balances and/or for sub-accounting, administrative or shareholder processing services. The amounts of these payments could be significant, and may create an incentive for the intermediary or its representatives to recommend or offer shares of the fund to you. The intermediary may elevate the prominence or profile of the fund within the intermediary's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the advisor and/or the distributor preferential or enhanced opportunities to promote the fund in various ways within the intermediary's organization. These payments are not reflected in the fees and expenses listed in the "Fund Summary" section of the prospectus because they are not paid by the fund.
These payments are negotiated and may be based on such factors as the number or value of First American Fund shares that the intermediary sells or may sell; the value of the assets invested in the First American Funds by the intermediary's
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Purchasing, Redeeming, and Exchanging Shares CONTINUED
customers; the type and nature of services or support furnished by the intermediary; and/or other measures as determined from time to time by the advisor and/or distributor. Such payments are generally asset based but also may include the payment of a lump sum for services provided. In addition, the advisor and/or the distributor may make payments to reimburse selected intermediaries for items such as ticket charges (i.e., fees that an intermediary charges its representatives for effecting transactions in fund shares), operational charges, literature printing and/or distribution costs, and networking fees.
The advisor and/or distributor may make other payments or allow other promotional incentives to financial intermediaries to the extent permitted by SEC and FINRA rules and by other applicable laws and regulations.
You can ask your financial intermediary for information about any payments it
receives from the advisor and/or the distributor and from the fund, and any
services your intermediary provides, as well as about fees and/or commissions
your intermediary charges. You can also find more details about payments made by
the advisor, and/or the distributor in the fund's SAI.
PURCHASE, REDEMPTION, AND EXCHANGE PROCEDURES
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
As a result, when you open an account, we will ask for your name, permanent street address, date of birth, and social security or taxpayer identification number. Addresses containing a P.O. Box only will not be accepted. We may also ask for other identifying documents or information.
Purchasing Class A Shares
You can become a shareholder in the fund by making the following minimum initial or additional investments.
Minimum Minimum
Initial Additional
Account Types Investment Investment
------------------------------------------------------
Retirement plan, Uniform Gift
to Minors Act (UGMA)/
Uniform Transfers to Minors
Act (UTMA) accounts $ 500 $ 25
All other accounts $1,000 $100
|
The fund has the right to waive these minimum investment requirements for shares offered through certain institutions and for employees of the fund's advisor and its affiliates. The fund also has the right to reject any purchase order.
By Phone. You can purchase shares by calling your financial intermediary, if it has a sales agreement with the fund's distributor. You can also place purchase orders of $100 or more by calling Investor Services at 800 677-FUND. Funds will be transferred electronically from your bank account through the Automated Clearing House (ACH) network. Before making a purchase by electronic funds transfer, you must submit a new account form to the fund and elect this option. Be sure to include a cancelled check with the form.
By Wire. You can purchase shares by making a wire transfer from your bank. Before making an initial investment by wire, you must submit a new account form to the fund. After receiving your form, a service representative will contact you with your account number and wiring instructions. Your order will be priced at the next NAV calculated after the fund's custodian receives your payment by wire. Before making any additional purchases by wire, you should call Investor Services at 800 677-FUND. You cannot purchase shares by wire on days when federally chartered banks are closed.
By Mail. To purchase shares by mail, simply complete and sign a new account form, enclose a check made payable to the fund, and mail both to:
REGULAR U.S. MAIL: OVERNIGHT EXPRESS MAIL: ------------------------ ------------------------ First American Funds First American Funds P.O. Box 3011 615 East Michigan Street Milwaukee, WI 53201-3011 Milwaukee, WI 53202 |
After you have established an account, you may continue to purchase shares by mailing your check to First American Funds at the same address.
Please note the following:
- All purchases must be drawn on a bank located within the United States and payable in U.S. dollars to First American Funds.
- Cash, money orders, cashier's checks for less than $10,000, third-party checks, Treasury checks, credit card checks, traveler's checks, starter checks, and credit cards will not be accepted. We are unable to accept post dated checks, post dated on-line bill pay checks, or any conditional order or payment.
- If a check or ACH transaction does not clear your bank, the fund reserves the right to cancel the purchase, and you may be charged a fee of $25 per check or transaction. You could be liable for any losses or fees incurred by the fund as a result of your check or ACH transaction failing to clear.
By Systematic Investment Plan. To purchase shares as part of a savings discipline, you may add to your investment on a regular basis:
- by having $100 or more ($25 for a retirement account or a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account) automatically withdrawn from your bank account on a periodic basis and invested in fund shares, or
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
- through automatic monthly exchanges of your First American fund into another First American fund of the same class.
You may apply for participation in either of these programs through your financial intermediary or by calling Investor Services at 800 677-FUND.
Redeeming Class A Shares
When you redeem shares, the proceeds normally will be mailed or wired within three days, but in no event more than seven days, after your request is received in proper form.
By Phone. If you purchased shares through a financial intermediary, simply call them to redeem your shares.
If you did not purchase shares through a financial intermediary, you may redeem your shares by calling Investor Services at 800 677-FUND. Proceeds can be wired to your bank account (if you have previously supplied your bank account information to the fund) or sent to you by check. The fund charges a $15 fee for wire redemptions, but has the right to waive this fee for shares redeemed through certain financial intermediaries and by certain individuals. Proceeds also can be sent directly to your bank or brokerage account via electronic funds transfer if your bank or brokerage firm is a member of the ACH network. Credit is usually available within 2-3 business days. The First American funds reserve the right to limit telephone redemptions to $50,000 per account per day.
If you recently purchased your shares by check or through the ACH network, proceeds from the sale of those shares may not be available until your check or ACH payment has cleared, which may take up to 15 calendar days from the date of purchase.
By Mail. To redeem shares by mail, send a written request to your financial intermediary, or to the fund at the following address:
REGULAR U.S. MAIL: OVERNIGHT EXPRESS MAIL: ------------------------ ------------------------ First American Funds First American Funds P.O. Box 3011 615 East Michigan Street Milwaukee, WI 53201-3011 Milwaukee, WI 53202 |
Your request should include the following information:
- name of the fund
- account number
- dollar amount or number of shares redeemed
- name on the account
- signatures of all registered account owners
Signatures on a written request must be guaranteed if:
- you would like redemption proceeds to be paid to anyone other than to the shareholder of record.
- you would like the redemption check mailed to an address or bank account other than those on the fund's records, or you have changed the address on the fund's records within the last 30 days.
- your redemption request is in excess of $50,000.
- bank information related to an automatic investment plan, telephone purchase or telephone redemption is changed.
In addition to the situations described above, the fund reserves the right to require a signature guarantee in other instances based on the circumstances of a particular situation.
A signature guarantee assures that a signature is genuine and protects shareholders from unauthorized account transfers. Banks, savings and loan associations, trust companies, credit unions, broker-dealers, and member firms of a national securities exchange may guarantee signatures. Call your financial intermediary to determine if it has this capability. A notary public is not an acceptable signature guarantor.
Proceeds from a written redemption request will be sent to you by check unless another form of payment is requested.
By Wire. You can call or write to have redemption proceeds sent to a bank account. See the policies for redeeming shares by phone or by mail. Before requesting to have redemption proceeds sent to a bank account, please make sure the fund has your bank account information on file. If the fund does not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. If the bank and fund accounts do not have at least one common owner, you must provide written instructions signed by all fund and bank account owners, and each individual must have their signature guaranteed.
By Systematic Withdrawal Plan. If your account has a value of $5,000 or more, you may redeem a specific dollar amount from your account on a regular basis. You may set up a systematic withdrawal when you complete a new account form or by calling your financial intermediary.
You should not make systematic withdrawals if you plan to continue investing in the fund, due to sales charges and tax liabilities.
Exchanging Class A Shares
If your investment goals or your financial needs change, you may move from one First American fund to another First American fund. There is no fee to exchange shares.
Generally, you may exchange your shares only for the same class of shares of the other fund, with certain exceptions, including:
- You may exchange your Class A shares for Class Y shares of the same or another First American fund if you subsequently become eligible to purchase Class Y shares.
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Purchasing, Redeeming, and Exchanging Shares CONTINUED
- If you are no longer eligible to hold Class Y shares, you may exchange your shares for Class A shares at net asset value. Class A shares have higher expenses than Class Y shares.
Exchanges are made based on the net asset value per share of each fund at the time of the exchange. When you exchange your Class A shares of one of the funds for Class A shares of another First American fund, you do not have to pay a sales charge.
Before exchanging into any fund, be sure to read its prospectus carefully. A fund may change or cancel its exchange policies at any time. You will be notified of any changes. The funds have the right to limit exchanges that are deemed to constitute short-term trading. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Short-Term Trading of Fund Shares" below.
By Phone. If both funds have identical shareholder registrations, you may exchange shares by calling your financial intermediary or by calling the funds directly at 800 677-FUND.
By Mail. To exchange shares by written request, please follow the procedures under "Redeeming Class A Shares" above. Be sure to include the names of both funds involved in the exchange.
By Systematic Exchange Plan. You may add to your investment on a regular basis through automatic monthly exchanges of one First American fund into another First American fund of the same class. You may apply for participation in this program through your financial intermediary or by calling Investor Services at 800 677-FUND.
Purchasing, Redeeming, and Exchanging Class Y Shares
You may purchase or redeem shares by calling your financial intermediary. When purchasing shares, payment generally must be made by wire transfer, which can be arranged by your financial intermediary. You cannot purchase shares by wire on days when federally chartered banks are closed. The fund reserves the right to impose minimum investment amounts on clients of financial intermediaries that charge the fund or the advisor transaction or recordkeeping fees.
If the fund or an authorized financial intermediary receives your redemption request by 3:00 p.m. Central time, payment of your redemption proceeds will ordinarily be made by wire on the next business day. It is possible, however, that payment could be delayed by up to seven days.
Exchanging Class Y Shares. If your investment goals or your financial needs change, you may exchange your shares for Class Y shares of another First American fund. There is no fee to exchange shares. If you are no longer eligible to purchase Class Y shares, you may exchange your shares for Class A shares at net asset value. Class A shares have higher expenses than Class Y shares.
To exchange your shares, call your financial intermediary.
Before exchanging into any fund, be sure to read its prospectus carefully. A fund may change or cancel its exchange policies at any time. You will be notified of any changes. The funds have the right to limit exchanges that are deemed to constitute short-term trading. See "Additional Information on Purchasing, Redeeming, and Exchanging Shares -- Short-Term Trading of Fund Shares" below.
Systematic Transactions. You may add to your investment, or redeem a specific dollar amount from your account, on a regular, automatic basis through a systematic investment or withdrawal plan. You may also move from one First American Fund to another First American Fund of the same class on a regular basis through automatic monthly exchanges. You may apply for participation in these programs through your financial intermediary.
You should not make systematic withdrawals if you plan to continue investing in a fund, due to sales charges and tax liabilities.
ADDITIONAL INFORMATION ON PURCHASING, REDEEMING, AND EXCHANGING SHARES
Calculating Net Asset Value
The fund generally calculates its NAV as of 3:00 p.m. Central time every day the NYSE is open. The fund does not calculate its NAV on national holidays, or any other days, on which the NYSE is closed for trading.
The fund's NAV is equal to the market value of its investments and other assets, less any liabilities, divided by the number of fund shares.
Investments and other assets will be valued at their market values. For securities traded on an exchange, we receive the price as reported by the exchange from one or more independent pricing services that have been approved by the fund's board of directors. These independent pricing services also provide security valuations for certain other investments not traded on an exchange. If market prices are not readily available for an investment or if the advisor believes they are unreliable, fair value prices may be determined in good faith using procedures approved by the fund's board of directors. Under these procedures, fair values are generally determined by a pricing committee appointed by the board of directors, except that the fund may rely on recommendations of a fair value pricing service approved by the fund's board of directors in valuing foreign securities. The types of securities for which such
Policies and Services
Purchasing, Redeeming, and Exchanging Shares CONTINUED
fair value pricing might be required include, but are not limited to:
- Securities, including securities traded in foreign markets, where an event occurs after the close of the market in which such security principally trades, but before the NAV is determined, that will affect the value of such security, or the closing value is otherwise deemed unreliable;
- Securities whose trading has been halted or suspended;
- Fixed-income securities that have gone into default and for which there is no current market value quotation; and
- Securities with limited liquidity, including certain high-yield securities or securities that are restricted as to transfer or resale.
Valuing securities at fair value involves greater reliance on judgment than valuing securities that have readily available market quotations. Fair value determinations can also involve reliance on quantitative models employed by a fair value pricing service. There can be no assurance that the fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the fund determines its NAV per share.
The fund will hold portfolio securities that trade on weekends or other days when the fund does not price its shares. Therefore, the NAV of the fund's shares may change on days when you will not be able to purchase or redeem your fund shares.
Short-Term Trading of Fund Shares
The fund discourages purchases and redemptions of its shares in response to short-term fluctuations in the securities markets. The fund's board of directors has adopted policies and procedures designed to detect and deter short-term trading in the fund's shares that may disadvantage long-term fund shareholders. These policies are described below. The fund will not knowingly accommodate trading in the fund's shares in violation of these policies.
Risks Associated with Short-Term Trading. Short-term trading in a fund's shares, particularly in larger amounts, may be detrimental to long-term shareholders of the fund. Depending on various factors, including the size of a fund, the amount of assets the fund typically maintains in cash or cash equivalents, the dollar amount and number and frequency of trades, and the types of securities in which the fund typically invests, short-term trading may interfere with the efficient management of the fund's portfolio, increase the fund's transaction costs, administrative costs and taxes, and/or impact the fund's performance.
In addition, the nature of a fund's portfolio holdings may allow a shareholder engaging in a short-term trading strategy to take advantage of possible delays between the change in the value of a fund's portfolio holdings and the reflection of that change in the net asset value of the fund's shares. Such a delay may occur in funds that have significant investments in foreign securities, where the value of those securities is established some time before the fund calculates its own share price, or in funds that hold significant investments in small-cap securities, high-yield (junk) bonds and other types of investments that may not be frequently traded. This type of short-term trading is sometimes referred to as "arbitrage market timing," and there is the possibility that such trading may dilute the value of fund shares if redeeming shareholders receive proceeds (and buying shareholders receive shares) based upon net asset values which do not reflect appropriate fair value prices.
Short-Term Trading Policies. The fund's advisor monitors trading in fund shares in an effort to identify short-term trading activity that may disadvantage long-term shareholders. Only transactions that exceed a certain dollar threshold that has been determined to be potentially disruptive to the management of the fund are subject to monitoring. It is the policy of the fund to permit no more than one round trip by an investor during any 90-calendar-day period. A round trip is defined as a purchase into or redemption out of the fund (including purchases or redemptions accomplished by an exchange) paired with an opposite direction redemption out of or purchase into the fund within 10 calendar days, in a dollar amount that exceeds the monitoring threshold. If the advisor determines that a shareholder has made more than one round trip during any 90-calendar-day period, the shareholder conducting such trading will, in less serious instances, be given an initial warning to discontinue such trading. In more serious instances (generally involving larger dollar amounts), or in the case of a second violation after an initial warning has been given, the shareholder may be temporarily or permanently barred from making future purchases into the fund or, alternatively, the fund may limit the amount, number or frequency of any future purchases and/or the method by which the shareholder may request future purchases (including purchases by an exchange or transfer between the fund and any other fund). In addition to the foregoing sanctions, the fund reserves the right to reject any purchase order at any time and for any reason, without prior written notice. The fund also reserves the right to revoke the exchange privileges of any person at any time and for any reason. In making determinations concerning the rejection of purchase orders and the revocation of exchange privileges, and in considering which sanctions to impose, the fund may consider an investor's trading history in any of the First American Funds, in non-First American mutual funds, or in accounts under a person's common ownership or control.
Certain transactions are not subject to the fund's short-term trading policies. These include transactions such as systematic redemptions and purchases; retirement plan contributions, loans and distributions (including hardship withdrawals); purchase transactions involving transfers of assets, rollovers, Roth IRA conversions and IRA re-characterizations; regular portfolio re- balancings in fee-based programs of registered investment
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Purchasing, Redeeming, and Exchanging Shares CONTINUED
advisors, financial planners and registered broker-dealers; and similar transactions.
Omnibus Accounts. Fund shares are frequently held through omnibus account arrangements, whereby a broker-dealer, investment advisor, retirement plan sponsor or other financial intermediary maintains an omnibus account with a fund for trading on behalf of its customers. The fund seeks to apply its short-term trading policies and procedures to these omnibus account arrangements and will request that the intermediary provide individual account level detail (or participant level detail in the case of retirement plans) to the fund if more than one round trip in any 90 day period is detected at the omnibus or plan level and such round trips appear to be (a) attributable to an individual shareholder or plan participant and (b) potentially detrimental to the fund and its shareholders based on such factors as the time between transactions, the size of the transactions and the type of fund involved. If short-term trading is detected at the individual account or participant level, the fund will request that the financial intermediary take appropriate action to curtail the activity. If the financial intermediary does not take action, the fund will take such steps as are reasonably practicable to curtail the excessive trading, including terminating the relationship with the intermediary if necessary.
The fund has entered into shareholder information agreements with certain financial intermediaries pursuant to Rule 22c-2 of the Investment Company Act of 1940 under which the financial intermediaries have agreed to assist the fund in monitoring trading activity and enforcing the fund's short-term trading policies with respect to the financial intermediaries' customers.
Telephone Transactions
The fund and its agents will not be responsible for any losses that may result from acting on wire or telephone instructions that they reasonably believe to be genuine. The fund and its agents will each follow reasonable procedures to confirm that instructions received by telephone are genuine, which may include taping telephone conversations.
It may be difficult to reach the fund by telephone during periods of unusual market activity. If you are unable to reach the fund or its agents by telephone, please consider sending written instructions.
Accounts with Low Balances
If your account balance falls below $500 the fund reserves the right to either:
- deduct a $50 annual account maintenance fee, or
- close your account and send you the proceeds, less any applicable contingent deferred sales charge.
Before taking any action, however, you will be sent a written notice of the action they intend to take and give you 30 days to re-establish a minimum account balance of $500.
Redemption in Kind
Generally, proceeds from redemption requests will be paid in cash. However, to minimize the effect of large redemption requests on the fund and its remaining shareholders, if you redeem more than $250,000 of a fund's assets within a 30-day period, the fund reserves the right to pay part or all of the proceeds from a redemption request in a proportionate share of securities from the fund's portfolio instead of cash. In selecting securities for a redemption in kind, the advisor will consider the best interests of the fund and the remaining fund shareholders, and will value these securities in accordance with the pricing methods employed to calculate the fund's net asset value per share. If you receive redemption proceeds in kind, you should expect to incur transaction costs upon disposition of the securities received in the redemption. In addition, you will bear the market risk associated with these securities until their disposition.
Policies and Services
Managing Your Investment
STAYING INFORMED
Shareholder Reports
Shareholder reports are mailed twice a year. They include financial statements and performance information, and, on an annual basis, a message from your portfolio managers and the report of independent registered public accounting firm.
In an attempt to reduce shareholder costs and help eliminate duplication, the fund will try to limit mailings to one report for each address that lists one or more shareholders with the same last name. If you would like additional copies, please call Investor Services at 800 677-FUND.
Statements and Confirmations
Statements summarizing activity in your account are mailed quarterly. Confirmations are mailed following each purchase or sale of fund shares, but some transactions, such as systematic purchases and dividend reinvestments, are reported on your account statement. Generally, the fund does not send statements for shares held in a brokerage account or to individuals who have their shares held in an omnibus account, such as retirement plan participants. Please review your statements and confirmations as soon as you receive them and promptly report any discrepancies to your financial intermediary or to Investor Services at 800 677-FUND.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the fund's net investment income, if any, are declared and paid annually. Any capital gains are distributed at least once each year.
On the ex-dividend date for a distribution, the fund's share price is reduced by the amount of the distribution. If you buy shares just before the ex-dividend date, in effect, you "buy the dividend." You will pay the full price for the shares and then receive a portion of that price back as a taxable distribution.
Dividend and capital gain distributions will be reinvested in additional shares of the fund, unless you request that distributions be reinvested in another First American fund or paid in cash. This request may be made on your new account form, by contacting your financial intermediary, or by calling Investor Services at 800 677-FUND. If you request that your distributions be paid in cash but those distributions cannot be delivered because of an incorrect mailing address, or if a distribution check remains uncashed for six months, the undelivered or uncashed distributions and all future distributions will be reinvested in fund shares at the current NAV.
TAXES
Some of the tax consequences of investing in the fund are discussed below. More
information about taxes is in the SAI. However, because everyone's tax situation
is unique, always consult your tax professional about federal, state, and local
tax consequences.
Taxes on Distributions
The fund pays its shareholders dividends from its net investment income and any net capital gains that it has realized. For most investors, fund dividends and distributions are considered taxable whether they are reinvested or taken in cash (unless your investment is in an IRA or other tax-advantaged account).
Dividends from the fund's short-term capital gains are taxable as ordinary income. Dividends paid from the net investment income of the fund are taxable either as ordinary income or as "qualified dividends" taxable at the same rate as long-term capital gains (currently subject to a maximum rate of 15%). The fund will inform its shareholders of the portion of its dividends (if any) that constitutes "qualified dividends." Dividends paid from a fund's net investment income that do not constitute "qualified dividends" are taxable as ordinary income. Distributions of the fund's long-term capital gains are taxable as long-term gains, regardless of how long you have held your shares.
Taxes on Transactions
The sale of fund shares, or the exchange of one fund's shares for shares of another fund, will be a taxable event and may result in a capital gain or loss. The gain or loss will be considered long-term if you have held your shares for more than one year. A gain or loss on shares held for one year or less is considered short-term and is taxed at the same rates as ordinary income.
If in redemption of his or her shares a shareholder receives a distribution of securities instead of cash, the shareholder will be treated as receiving an amount equal to the fair market value of the securities at the time of the distribution for purposes of determining capital gain or loss on the redemption, and will also acquire a basis in the shares for federal income tax purposes equal to their fair market value.
The exchange of one class of shares for another class of shares in the same fund will not be taxable.
Foreign Tax Credits
The fund may be required to pay withholding and other taxes imposed by foreign countries. If the fund has more than 50% of its total assets invested in securities of foreign corporations at the end of its taxable year, it may make an election that will permit you either to claim a foreign tax credit with respect to foreign taxes paid by the fund or to deduct those amounts as an itemized deduction on your tax return. If the fund makes this election, you will be notified and provided with sufficient information to calculate the amount you may deduct as foreign taxes paid or your foreign tax credit.
Policies and Services
Managing Your Investment CONTINUED
Considerations for Retirement Plan Clients
A plan participant whose retirement plan invests in the fund generally is not taxed on fund dividends or distributions received by the plan or on sales or exchanges of fund shares by the plan for federal income tax purposes. However, distributions to plan participants from a retirement plan generally are taxable to plan participants as ordinary income. You should consult your tax professional about federal, state and local tax considerations.
More information about tax considerations that may affect the fund and its shareholders appears in the fund's SAI.
Additional Information
Management
FAF Advisors, Inc., is the fund's investment advisor. FAF Advisors provides investment management services to individuals and institutions, including corporations, foundations, pensions, and retirement plans. As of September 30, 2007, FAF Advisors and its affiliates had more than $105 billion in assets under management, including investment company assets of more than $86 billion. As investment advisor, FAF Advisors manages the fund's business and investment activities, subject to the authority of the fund's board of directors.
The fund pays the investment advisor a monthly management fee for providing investment advisory services equal, on an annual basis, to 0.90% of the fund's average daily net assets.
A discussion regarding the basis for the board of directors' approval of the fund's investment advisory agreement will appear in the fund's annual report to shareholders for the fiscal period ending October 31, 2008.
Direct Correspondence to:
First American Funds
P.O. Box 1330
Minneapolis, MN 55440-1330
Investment Advisor
FAF Advisors, Inc.
800 Nicollet Mall
Minneapolis, MN 55402
Distributor
Quasar Distributors, LLC
615 E. Michigan Street
Milwaukee, WI 53202
ADDITIONAL COMPENSATION
FAF Advisors, U.S. Bank National Association (U.S. Bank) and other affiliates of U.S. Bancorp may act as fiduciary with respect to plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and other trust and agency accounts that invest in the First American Funds. As described above, FAF Advisors receives compensation for acting as the fund's investment advisor. FAF Advisors, U.S. Bank and their affiliates also receive compensation from the fund as set forth below.
Administration Services. FAF Advisors and its affiliate, U.S. Bancorp Fund Services, LLC (Fund Services), act as the fund's administrator and sub-administrator, respectively, providing administration services that include general administrative and accounting services, blue sky services and shareholder services. For such services, the fund pays FAF Advisors the fund's pro rata portion of up to 0.25% of the aggregate average daily net assets of all open-end funds in the First American family of funds. FAF Advisors pays Fund Services a portion of its fee, as agreed to from time to time. In addition to these fees, the fund may reimburse FAF Advisors for any out-of-pocket expenses incurred in providing administration services.
Transfer Agency Services. Fund Services provides transfer agency and dividend disbursing services, as well as certain shareholder services, to the fund. Fund Services receives fees for transfer agency and dividend disbursing services on a per shareholder account basis, subject to a minimum fee per share class. In addition, the fund may reimburse Fund Services for any out-of-pocket expenses incurred in providing transfer agency services.
Distribution Services. Quasar Distributors, LLC, an affiliate of FAF Advisors, receives distribution and shareholder servicing fees for acting as the fund's distributor.
Securities Lending Services. In connection with lending its portfolio securities, the fund pays fees to U.S. Bank of up to 25% of each fund's net income from these securities lending transactions.
Other Compensation. To the extent that fund shares are held through U.S. Bank or its broker-dealer affiliate, U.S. Bancorp Investments, Inc., those entities may receive distribution and/or shareholder servicing fees from the fund's distributor as well as other payments from the fund's distributor and/or advisor as described above under "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares -- Compensation Paid to Financial Intermediaries -- Additional Payments to Financial Intermediaries."
PORTFOLIO MANAGEMENT
The portfolio managers primarily responsible for the fund's management are:
Jay L. Rosenberg, Equity Portfolio Manager. Mr. Rosenberg has served as primary portfolio manager for the fund since its inception. Prior to joining FAF Advisors in 2005, Mr. Rosenberg was a vice president and real estate portfolio manager for Advantus Capital Management from 2000 to 2005. Mr. Rosenberg entered the financial services industry in 1995.
John G. Wenker, Head of Real Estate. Mr. Wenker has co-managed the fund since its inception. Mr. Wenker entered the financial services industry in 1983 and joined FAF Advisors in 1992.
The SAI provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers, and the portfolio managers' ownership of securities in the fund.
(FIRST AMERICAN FUNDS LOGO)
FOR MORE INFORMATION
More information about the fund is available on the fund's Internet site at www.firstamericanfunds.com and in the following documents:
ANNUAL AND SEMIANNUAL REPORTS
Additional information about the fund's investments will be available in the fund's annual and semiannual reports to shareholders. In the fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the fund and its policies and is incorporated into this prospectus by reference (which means that it is legally part of this prospectus).
You can obtain a free copy of the fund's most recent annual or semiannual reports or the SAI, request other information about the fund, or make other shareholder inquiries by calling Investor Services at 800 677-3863 (FUND) or by contacting the fund at the address below. Annual or semiannual reports and the SAI are also available on the fund's Internet site.
Information about the fund (including the SAI) can also be reviewed and copied at the Securities and Exchange Commission's (SEC) Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-202-942-8090. Reports and other information about the fund are also available on the EDGAR database on the SEC's Internet site at www.sec.gov, or you can receive copies of this information, for a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, DC 20549-0102.
FIRST AMERICAN FUNDS
P.O. Box 1330
Minneapolis, MN 55440-1330
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 17, 2007
GLOBAL INFRASTRUCTURE FUND
This Statement of Additional Information relates to the Class A and Class Y Shares of Global Infrastructure Fund (the "Fund"), a series of First American Investment Funds, Inc. ("FAIF"). This Statement of Additional Information is not a prospectus, but should be read in conjunction with the current Prospectus dated December 17, 2007. This Statement of Additional Information is incorporated into the Fund's Prospectus by reference. To obtain copies of the Prospectus or the Fund's Annual Report, when one becomes available, at no charge, write the Fund's distributor, Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee, WI 53202, or call Investor Services at 800 677-FUND. Please retain this Statement of Additional Information for future reference.
TABLE OF CONTENTS
PAGE
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GENERAL INFORMATION ............................................... 1
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS ................ 2
Debt Obligations ............................................... 2
Exchange Traded Funds .......................................... 4
Foreign Currency Transactions .................................. 4
Foreign Securities ............................................. 5
Futures and Options on Futures ................................. 7
Lending of Portfolio Securities ................................ 9
Master Limited Partnerships .................................... 9
Mortgage-Backed Securities 10
Options Transactions ........................................... 12
Real Estate Investment Trust Securities ........................ 14
Repurchase Agreements .......................................... 15
Royalty Trusts ................................................. 15
Short-Term Temporary Investments ............................... 16
When-Issued and Delayed Delivery Transactions .................. 17
INVESTMENT RESTRICTIONS ........................................... 17
DISCLOSURE OF PORTFOLIO HOLDINGS ............................... 19
Public Disclosure .............................................. 19
Nonpublic Disclosure ........................................... 20
DIRECTORS AND EXECUTIVE OFFICERS .................................. 21
Independent Directors .......................................... 22
Executive Officers ............................................. 23
Standing Committees of the Board of Directors .................. 24
Fund Shares Owned by the Directors ............................. 26
Compensation ................................................... 26
Sales Loads .................................................... 28
CODE OF ETHICS .................................................... 28
PROXY VOTING POLICIES AND RECORDS ................................. 28
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUND ............... 28
Investment Advisor ............................................. 28
Additional Payments to Financial Intermediaries ................ 29
Administrator .................................................. 32
Transfer Agent ................................................. 33
Distributor .................................................... 33
Custodian and Independent Registered Public Accounting Firm .... 34
PORTFOLIO MANAGERS ................................................ 34
Other Accounts Managed ......................................... 34
Portfolio Manager Compensation ................................. 34
Ownership of Fund Shares ....................................... 35
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE ................ 35
CAPITAL STOCK ..................................................... 37
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NET ASSET VALUE AND PUBLIC OFFERING PRICE ......................... 37 TAXATION .......................................................... 37 REDUCING SALES CHARGES ............................................ 38 Class A Sales Charge ........................................... 38 Sales of Class A Shares at Net Asset Value ..................... 39 Reinvestment Right ............................................. 39 RECEIPT OF ORDERS BY FINANCIAL INTERMEDIARIES ..................... 39 ADDITIONAL INFORMATION ABOUT REDEEMING SHARES ..................... 40 By Telephone ................................................... 40 By Mail ........................................................ 40 Redemptions Before Purchase Instruments Clear .................. 41 RATINGS ........................................................... Appendix A PROXY VOTING POLICIES AND PROCEDURES .............................. Appendix B |
GENERAL INFORMATION
First American Investment Funds, Inc. ("FAIF") was incorporated in the State of Maryland on August 20, 1987 under the name "SECURAL Mutual Funds, Inc." The Board of Directors and shareholders, at meetings held January 10, 1991, and April 2, 1991, respectively, approved amendments to the Articles of Incorporation providing that the name "SECURAL Mutual Funds, Inc." be changed to "First American Investment Funds, Inc."
FAIF is organized as a series fund and currently issues shares in 43 series. Each series of shares represents a separate investment portfolio with its own investment objectives and policies (in essence, a separate mutual fund) (collectively, the "Funds" or "FAIF Funds"). This Statement of Additional Information relates to the series of FAIF known as the Global Infrastructure Fund (the "Fund"). The Fund is an open-end diversified investment company.
Shareholders may purchase shares of the Fund through two separate classes, Class A and Class Y, which provide for variations in distribution costs, shareholder servicing fees, voting rights and dividends. To the extent permitted by the Investment Company Act of 1940, as amended (the "1940 Act"), the Fund may also provide for variations in other costs among the classes. In addition, a sales load is imposed on the sale of Class A shares of the Fund. Except for the foregoing differences among the classes pertaining to costs and fees, each share of the Fund represents an equal proportionate interest in the Fund.
The Articles of Incorporation and Bylaws of FAIF provide that meetings of shareholders be held as determined by the Board of Directors and as required by the 1940 Act. Maryland corporation law requires a meeting of shareholders to be held upon the written request of shareholders holding 10% or more of the voting shares of FAIF, with the cost of preparing and mailing the notice of such meeting payable by the requesting shareholders. The 1940 Act requires a shareholder vote for, among other things, all amendments to fundamental investment policies and restrictions, for approval of investment advisory contracts and amendments thereto, and for amendments to Rule 12b-1 distribution plans.
This Statement of Additional Information may also refer to affiliated investment companies, including: First American Funds, Inc. ("FAF"); First American Strategy Funds, Inc. ("FASF"); Mount Vernon Securities Lending Trust ("Mount Vernon Trust"); and eight separate closed-end funds (American Strategic Income Portfolio Inc., American Strategic Income Portfolio Inc. II, American Strategic Income Portfolio Inc. III, American Municipal Income Portfolio Inc., Minnesota Municipal Income Portfolio Inc., First American Minnesota Municipal Income Fund II, Inc., American Select Portfolio Inc., and American Income Fund, Inc.), collectively referred to as the First American Closed-End Funds ("FACEF").
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The principal investment strategies of the Fund are set forth in the Fund's Prospectus. Additional information concerning principal investment strategies of the Fund, and information on non-principal investment strategies that may be used by the Fund, is set forth below. The Fund has attempted to identify investment strategies that will be employed in pursuing the Fund's investment objective. Additional information concerning the Fund's investment restrictions is set forth below under "Investment Restrictions."
If a percentage limitation on investments by the Fund stated in this SAI or the Prospectus is adhered to at the time of an investment, a later increase or decrease in percentage resulting from changes in asset value will not be deemed to violate the limitation except in the case of the limitations on borrowing. To the extent the Fund is limited to investing in securities with specified ratings or of a certain credit quality, the Fund is not required to sell a security if its rating is reduced or its credit quality declines after purchase, but the Fund may consider doing so. Descriptions of the rating categories of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), Fitch, Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's) are contained in Appendix A.
DEBT OBLIGATIONS
The Fund may invest in debt obligations as a non-principal investment strategy. These include securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, preferred stock, corporate debt securities, exchange-traded notes, mortgage-backed securities of the kinds described below under "Mortgage-Backed Securities," municipal securities, and short-term obligations of the kinds described below under "Short-Term Investments." The Fund's investments in debt obligations also may include securities which are convertible into or exchangeable for, or which carry warrants or other rights to acquire, common or preferred stocks. Investments in debt obligations will be limited to investment-grade securities, defined as securities which are rated at the time of purchase by two of Moody's, Standard & Poor's and Fitch not less than Baa, BBB and BBB (or the equivalent short-term ratings), respectively, unless only one of those rating agencies provides a rating, in which case that rating must be at least Baa or BBB, or which are of comparable quality in the judgment of the Advisor. Obligations rated BBB, Baa or their equivalent have speculative characteristics and carry a somewhat higher risk of default than higher rated obligations.
The debt obligations specified above are subject to (i) interest rate risk (the risk that increases in market interest rates will cause declines in the value of debt securities held by the Fund); (ii) credit risk (the risk that the issuers of debt securities held by the Fund default in making required payments); and (iii) call or prepayment risk (the risk that a borrower may exercise the right to prepay a debt obligation before its stated maturity, requiring the Fund to reinvest the prepayment at a lower interest rate).
Corporate Debt Securities. Corporate debt securities are fully taxable debt obligations issued by corporations. These securities fund capital improvements, expansions, debt refinancing or acquisitions that require more capital than would ordinarily be available from a single lender. Investors in corporate debt securities lend money to the issuing corporation in exchange for interest payments and repayment of the principal at a set maturity date. Rates on corporate debt securities are set according to prevailing interest rates at the time of the issue, the credit rating of the issuer, the length of the maturity and other terms of the security, such as a call feature. Corporate debt securities are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. In addition, corporate restructurings, such as mergers, leveraged buyouts, takeovers or similar corporate transactions are often financed by an increase in a corporate issuer's debt securities. As a result of the added debt burden, the credit quality and market value of an issuer's existing debt securities may decline significantly.
Exchange-Traded Notes (ETNs). ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions that combines both aspects of bonds and exchange-traded funds (ETFs), which are described below under "Exchange-Traded Funds." An ETN's returns are based on the performance of a market index minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN can be held until the ETN's maturity, at which time the issuer will pay a return linked to the performance of the market index to which the ETN is linked minus certain fees. Unlike regular bonds, ETNs do not make periodic interest payments and principal is not protected. An ETN that is tied to a specific index may not be able to replicate and
maintain exactly the composition and relative weighting of securities, commodities or other components in the applicable index. ETNs also incur certain expenses not incurred by their applicable index. Additionally, certain components comprising the index tracked by an ETN may, at times, be temporarily unavailable, which may impede an ETN's ability to track its index. Some ETNs that use leverage can, at times, be relatively illiquid and, thus, they may be difficult to purchase or sell at a fair price. Levered ETNs are subject to the same risk as other instruments that use leverage in any form. While leverage allows for greater potential return, the potential for loss is also greater. Finally, additional losses may be incurred if the investment loses value because, in addition to the money lost on the investment, the loan still needs to be repaid. The market value of an ETN is determined by supply and demand, the current performance of the index, and the credit rating of the ETN issuer. The market value of ETN shares may differ from their NAV. This difference in price may be due to the fact that the supply and demand in the market for ETN shares at any point in time is not always identical to the supply and demand in the market for the securities underlying the index that the ETN seeks to track. The value of an ETN may also change due to a change in the issuer's credit rating. As a result, there may be times when an ETN share trades at a premium or discount to its NAV.
Fixed and Floating Rate Debt Obligations. The debt obligations in which the Fund invests as a non-principal investment strategy may have either fixed or floating rates. Floating rate securities are generally offered at an initial interest rate which is at or above prevailing market rates. The interest rate paid on these securities is then reset periodically (commonly every 90 days) to an increment over some predetermined interest rate index. Commonly utilized indices include the three-month Treasury bill rate, the 180-day Treasury bill rate, the one-month or three-month London Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial paper rates, or the longer-term rates on U.S. Treasury securities. Fixed rate securities tend to exhibit more price volatility during times of rising or falling interest rates than securities with floating rates of interest. This is because floating rate securities behave like short-term instruments in that the rate of interest they pay is subject to periodic adjustments based on a designated interest rate index. Fixed rate securities pay a fixed rate of interest and are more sensitive to fluctuating interest rates. In periods of rising interest rates the value of a fixed rate security is likely to fall. Fixed rate securities with short-term characteristics are not subject to the same price volatility as fixed rate securities without such characteristics. Therefore, they behave more like floating rate securities with respect to price volatility.
Preferred Stock. Preferred stock, unlike common stock, offers a stated dividend rate payable from the issuer's earnings. Preferred stock dividends may be cumulative or non-cumulative, participating, or auction rate. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline.
U.S. Government Securities. The U.S. government securities in which the Fund may invest are either issued or guaranteed by the U.S. government, its agencies or instrumentalities. The U.S. government securities in which the Fund invests primarily are:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds;
- notes, bonds, and discount notes issued and guaranteed by U.S. government agencies and instrumentalities supported by the full faith and credit of the United States;
- notes, bonds, and discount notes of U.S. government agencies or instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government instrumentalities supported only by the credit of the instrumentalities.
The government securities in which the Fund may invest are backed in a variety of ways by the U.S. government or its agencies or instrumentalities. Some of these securities, such as Government National Mortgage Association ("GNMA") mortgage-backed securities, are backed by the full faith and credit of the U.S. government. Other securities, such as obligations of the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") are backed by the credit of the agency or instrumentality issuing the obligations but not the full faith and credit of the U.S. government. No assurances can be given that the U.S. government will provide financial support to these other agencies or instrumentalities because it is not obligated to do so.
Municipal Securities. The Fund may invest in municipal bonds and other municipal obligations. These bonds and other obligations are issued by the states and by their local and special-purpose political subdivisions. The term "municipal bond" includes short-term municipal notes issued by the states and their political subdivisions. The two general classifications of municipal bonds are "general obligation" bonds and "revenue" bonds.
General obligation bonds are secured by the governmental issuer's pledge of its faith, credit and taxing power for the payment of principal and interest upon a default by the issuer of its principal and interest payment obligations. They are usually paid from general revenues of the issuing governmental entity. Revenue bonds, on the other hand, are usually payable only out of a specific revenue source rather than from general revenues. Revenue bonds ordinarily are not backed by the faith, credit or general taxing power of the issuing governmental entity. The principal and interest on revenue bonds for private facilities are typically paid out of rents or other specified payments made to the issuing governmental entity by a private company which uses or operates the facilities. Examples of these types of obligations are industrial revenue bond and pollution control revenue bonds. Industrial revenue bonds are issued by governmental entities to provide financing aid to community facilities such as hospitals, hotels, business or residential complexes, convention halls and sport complexes. Pollution control revenue bonds are issued to finance air, water and solids pollution control systems for privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of the credit, general revenues or taxing powers of issuing governmental entity. Instead, the private company operating the facility is the sole source of payment of the obligation. Sometimes, the funds for payment of revenue bonds come solely from revenue generated by operation of the facility. Revenue bonds which are not backed by the credit of the issuing governmental entity frequently provide a higher rate of return than other municipal obligations, but they entail greater risk than obligations which are guaranteed by a governmental unit with taxing power. Federal income tax laws place substantial limitations on industrial revenue bonds, and particularly certain specified private activity bonds issued after August 7, 1986. In the future, legislation could be introduced in Congress which could further restrict or eliminate the income tax exemption for interest on debt obligations in which the Funds may invest.
EXCHANGE-TRADED FUNDS
The Fund may invest in ETFs as a principal investment strategy. ETFs are a type of index fund bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities designed to track a particular market index. The Fund could purchase an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting the purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in an ETF could result in it being more volatile and ETFs have management fees that increase their costs.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities which are purchased and sold in foreign currencies as a principal investment strategy. The value of the Fund's assets as measured in U.S. dollars therefore may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations. The Fund also will incur costs in converting U.S. dollars to local currencies, and vice versa. The Fund therefore may enter into foreign currency transactions as a principal investment strategy.
The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through forward contracts to purchase or sell foreign currencies. A forward foreign currency exchange contract involves an obligation to purchase or sell an amount of a specific currency at a specific price on a future date agreed upon by the parties. These forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers.
The Fund may enter into forward currency contracts in order to hedge against adverse movements in exchange rates between currencies. The Fund may engage in "transaction hedging" to protect against a change in the foreign currency exchange rate between the date the Fund contracts to purchase or sell a security and the settlement date, or to "lock in" the U.S. dollar equivalent of a dividend or interest payment made in a foreign currency. The Fund also may engage in "portfolio hedging" to protect against a decline in the value of its portfolio securities as measured in U.S. dollars which could result from changes in exchange rates between the U.S. dollar and the foreign currencies in which the portfolio securities are purchased and sold. The Fund also may hedge foreign currency exchange rate risk by engaging in currency futures and options transactions.
Although a foreign currency hedge may be effective in protecting the Fund from losses resulting from unfavorable changes in exchanges rates between the U.S. dollar and foreign currencies, it also would limit the gains which might be realized by the Fund from favorable changes in exchange rates. The Advisor's decision whether to enter into currency hedging transactions will depend in part on its view regarding the direction and amount in which exchange rates are likely to move. The forecasting of movements in exchange rates is extremely difficult, so that it is highly uncertain whether a hedging strategy, if undertaken, would be successful. To the extent that the Advisor's view regarding future exchange rates proves to have been incorrect, the Fund may realize losses on its foreign currency transactions.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. The Fund will not enter into such forward contracts or maintain a net exposure in such contracts where it would be obligated to deliver an amount of foreign currency in excess of the value of its securities or other assets denominated in that currency. The Fund will comply with applicable SEC positions requiring it to segregate assets to cover its commitments with respect to such contracts. The Fund generally will not enter into a forward contract with a term longer than one year.
Foreign Currency Futures Transactions. Unlike forward foreign currency exchange contracts, foreign currency futures contracts and options on foreign currency futures contracts are standardized as to amount and delivery period and may be traded on boards of trade and commodities exchanges or directly with a dealer which makes a market in such contracts and options. It is anticipated that such contracts may provide greater liquidity and lower cost than forward foreign currency exchange contracts. As part of its financial futures transactions, the Fund may use foreign currency futures contracts and options on such futures contracts. Through the purchase or sale of such contracts, the Fund may be able to achieve many of the same objectives as through investing in forward foreign currency exchange contracts.
Foreign Currency Options. A foreign currency option provides the option buyer with the right to buy or sell a stated amount of foreign currency at the exercise price at a specified date or during the option period. A call option gives its owner the right, but not the obligation, to buy the currency, while a put option gives its owner the right, but not the obligation, to sell the currency. The option seller (writer) is obligated to fulfill the terms of the option sold if it is exercised. However, either seller or buyer may close its position during the option period in the secondary market for such options at any time prior to expiration.
A foreign currency call option rises in value if the underlying currency appreciates. Conversely, a foreign currency put option rises in value if the underlying currency depreciates. While purchasing a foreign currency option may protect the Fund against an adverse movement in the value of a foreign currency, it would limit the gain which might result from a favorable movement in the value of the currency. For example, if the Fund were holding securities denominated in an appreciating foreign currency and had purchased a foreign currency put to hedge against a decline in the value of the currency, it would not have to exercise its put. In such an event, however, the amount of the Fund's gain would be offset in part by the premium paid for the option. Similarly, if the Fund entered into a contract to purchase a security denominated in a foreign currency and purchased a foreign currency call to hedge against a rise in the value of the currency between the date of purchase and the settlement date, the Fund would not need to exercise its call if the currency instead depreciated in value. In such a case, the Fund could acquire the amount of foreign currency needed for settlement in the spot market at a lower price than the exercise price of the option.
FOREIGN SECURITIES
General. The Fund invests a significant portion of its assets in foreign securities. Investment in foreign securities is subject to special investment risks that differ in some respects from those related to investments in securities of U.S. domestic issuers. These risks include political, social or economic instability in the country of the issuer, the difficulty of predicting international trade patterns, the possibility of the imposition of exchange controls, expropriation, limits on removal of currency or other assets, nationalization of assets, foreign withholding and income taxation, and foreign trading practices (including higher trading commissions, custodial charges and delayed settlements). Foreign securities also may be subject to greater fluctuations in price than securities issued by U.S. corporations. The principal markets on which these securities trade may have less volume and liquidity, and may be more volatile, than securities markets in the U.S.
In addition, there may be less publicly available information about a foreign company than about a U.S. domiciled company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. domestic companies. There is also generally less government regulation of securities exchanges, brokers and listed companies abroad than in the U.S. Confiscatory taxation or diplomatic developments could also affect investment in those countries. In addition, foreign branches of U.S. banks, foreign banks and foreign issuers may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and record keeping standards than those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
Emerging Markets. The Fund may invest up to 25% of its total assets in
securities issued by the governmental and corporate issuers that are located in
emerging market countries. Investments in securities of issuers in emerging
market countries may be subject to potentially higher risks than investments in
developed countries. These risks include (i) less social, political and economic
stability; (ii) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which may result in a lack
of liquidity and in greater price volatility; (iii) certain national policies
which may restrict the Fund's investment opportunities, including restrictions
on investment in issuers or industries deemed sensitive to national interests;
(iv) foreign taxation; (v) the absence of developed structures governing private
or foreign investment or allowing for judicial redress for injury to private
property; (vi) the limited development and recent emergence, in certain
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in certain countries
may be slowed or reversed by unanticipated political or social events in such
countries.
Despite the dissolution of the Soviet Union, the Communist Party may continue to exercise a significant role in certain (particularly Eastern European) countries. To the extent of the Communist Party's influence, investments in such countries will involve risks of nationalization, expropriation and confiscatory taxation. The communist governments of a number of such countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of such expropriation, the Fund could lose a substantial portion of any investments it has made in the affected countries. Further, no accounting standards exist in many developing countries. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be artificial to the actual market values and may be adverse to Fund shareholders.
Certain countries, which do not have market economies, are characterized by an absence of developed legal structures governing private and foreign investments and private property. Certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investment of foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals.
Authoritarian governments in certain countries may require that a governmental or quasi-governmental authority act as custodian of the Fund's assets invested in such country. To the extent such governmental or quasi-governmental authorities do not satisfy the requirements of the 1940 Act to act as foreign custodians of the Fund's cash and securities, the Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries.
American Depositary Receipts and European Depositary Receipts. U.S. dollar-denominated American Depositary Receipts (ADRs), which are traded in the United States on exchanges or over-the-counter, are issued by domestic banks. ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in foreign issuers' stock, the Fund can avoid currency risks during the settlement period for either purchases or sales. In general, there is a large, liquid market in the United States for many ADRs. The information available for ADRs is subject to the accounting, auditing and financial reporting standards of the domestic market or exchange on which they are traded, which standards are more uniform and more exacting than those to which many foreign issuers may be subject. The Fund also may invest in European Depositary Receipts (EDRs), which are receipts evidencing an arrangement with a European bank similar to that for ADRs and which are designed for use in the European securities markets. EDRs are not necessarily denominated in the currency of the underlying security.
Certain ADRs and EDRs, typically those denominated as unsponsored, require the holders thereof to bear most of the costs of the facilities while issuers of sponsored facilities normally pay more of the costs thereof. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited securities or to pass through the voting rights to facility holders in respect to the deposited securities, whereas the depository of a sponsored facility typically distributes shareholder communications and passes through voting rights.
Foreign Securities Exchanges. Fixed commissions on foreign securities exchanges are generally higher than negotiated commissions on U.S. exchanges. Foreign markets also have different clearance and settlement procedures, and in some markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of the Fund is uninvested. In addition, settlement problems could cause the Fund to miss attractive investment opportunities or to incur losses due to an inability to sell or deliver securities in a timely fashion. In the event of a default by an issuer of foreign securities, it may be more difficult for the Fund to obtain or to enforce a judgment against the issuer.
FUTURES AND OPTIONS ON FUTURES
The Fund may engage in futures transactions and options on futures as a principal investment strategy, including stock and interest rate index futures contracts and options thereon. The Fund may also enter into foreign currency futures transactions, which are discussed in more detail above under "--Foreign Currency Transactions."
A futures contract is an agreement between two parties to buy and sell a security for a set price on a future date. These contracts are traded on exchanges, so that, in most cases, either party can close out its position on the exchange for cash, without delivering the security. An option on a futures contract gives the holder of the option the right to buy or sell a position in a futures contract to the writer of the option, at a specified price and on or before a specified expiration date.
An interest rate, foreign currency or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument, foreign currency or the cash value of an index at a specified price and time. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of these securities is made.
Futures options possess many of the same characteristics as options on securities, currencies and indexes (discussed below under "--Options Transactions"). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true.
The Fund intends generally to use futures contracts and futures options to hedge against market risk. The Fund's hedging activities may include sales of futures contracts as an offset against the effect of expected increases in interest rates, and purchases of futures contracts as an offset against the effect of expected declines in interest rates. Although other techniques could be used to reduce the Fund's exposure to interest rate fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options.
The Fund will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade or similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by the Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of liquid assets ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. Margin requirement on foreign exchanges may be modified during the term of the contract. Margin requirements on foreign exchanges may be different than U.S. exchanges. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Fund expects to earn interest income on its initial margin deposits. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily net asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Fund.
Futures transactions also involve brokerage costs and the Fund may have to segregate additional liquid assets in accordance with applicable SEC requirements.
Although some futures contracts call for making or taking delivery of the underlying currency or securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying currency, security, and delivery month). Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument with the same delivery date. If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund realizes a capital loss. The transaction costs must also be included in these calculations.
The Fund may write covered straddles consisting of a call and a put written on the same underlying futures contract. A straddle will be covered when sufficient assets are deposited to meet the Fund's immediate obligations.
Limitations on Use of Futures and Futures Options. Aggregate initial margin deposits for futures contracts, and premiums paid for related options, may not exceed 5% of the Fund's total assets. Futures transactions will be limited to the extent necessary to maintain the Fund's qualification as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code").
Risks Associated with Futures and Futures Options. There are several risks associated with the use of futures contracts and futures options as hedging techniques. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the Fund securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as variations in speculative market demand for futures and futures options, including technical influences in futures trading and futures options, and differences between the financial instruments being hedged and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a futures or a futures option position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.
CFTC Information. The Commodity Futures Trading Commission (the "CFTC"), a federal agency, regulates trading activity pursuant to the Commodity Exchange Act, as amended (the "CEA"). The CFTC requires the registration of a Commodity Pool Operator (a "CPO"), which is defined as any person engaged in a business which is of the nature of an investment trust, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others funds, securities or property for the purpose of trading in a commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which files a notice of eligibility. The Fund has filed a notice of eligibility claiming exclusion from the status of CPO and, therefore, are not subject to registration or regulation as a CPO under the CEA.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, as a non-principal investment strategy the Fund may lend portfolio securities representing up to one-third of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Fund will only enter into domestic loan arrangements with broker-dealers, banks, or other institutions. The Fund will pay a portion of the income earned on the lending transaction to the placing broker and may pay administrative and custodial fees in connection with these loans.
In these loan arrangements, the Fund will receive collateral in the form of cash, U.S. government securities or other high-grade debt obligations equal to at least 100% of the value of the securities loaned. This collateral must be valued daily by the Advisor or the Fund's lending agent and, if the market value of the loaned securities increases, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or interest paid on the securities. Loans are subject to termination at any time by the lending Fund or the borrower. While the Fund does not have the right to vote securities on loan, it would terminate the loan and regain the right to vote if that were considered important with respect to the investment.
When the Fund lends portfolio securities to a borrower, payments in lieu of dividends made by the borrower to the Fund will not constitute "qualified dividends" taxable at the same rate as long-term capital gains, even if the actual dividends would have constituted qualified dividends had the Fund held the securities. See "Taxation."
U.S. Bank, N.A. acts as securities lending agent for the Fund and receives separate compensation for such services, subject to compliance with conditions contained in an SEC exemptive order permitting U.S. Bank to provide such services and receive such compensation. U.S. Bank receives fees of up to 25% of the Fund's net income from securities lending transactions. A portion of this amount is paid to State Street Bank and Trust for acting as sub-lending agent.
MASTER LIMITED PARTNERSHIPS ("MLPS")
The Fund may invest in MLPs as a principal investment strategy. MLPs are limited partnerships in which the ownership units (i.e., limited partnership interests) are publicly traded. MLP units are registered with the SEC and are freely traded on a securities exchange or in the over-the-counter market. Many MLPs operate in the oil and gas related businesses, including energy processing and distribution. Many MLPs are pass-through entities that generally are taxed at the unit holder level and are not subject to federal or state income tax at the partnership level. Annual income, gains, losses, deductions and credits of an MLP pass through directly to its unitholders. Distributions from an MLP may consist in part of a return of capital. Generally, an MLP is operated under the supervision of one or more general partners. Limited partners are not involved in the day-to-day management of the partnership.
The risks of investing in an MLP are generally those involved in investing in a partnership as opposed to a corporation. For example, state law governing partnerships is often less restrictive than state law governing corporations. Accordingly, there may be fewer protections afforded investors in an MLP than investors in a corporation. Investments held by MLPs may be relatively illiquid, limiting the MLPs' ability to vary their portfolios promptly in response to changes in economic or other conditions. MLPs may have limited financial resources, their securities may trade infrequently and in limited volume, and they may be subject to more abrupt or erratic price movements than securities of larger or more broadly-based companies. The Fund's investment in MLPs also subjects the Fund to the risks associated with the specific industry or industries in which the MLPs invest. Additionally, since MLPs generally conduct business in multiple states, the Fund may be subject to income or franchise tax in each of the states in which the
partnership does business. The additional cost of preparing and filing the tax returns and paying the related taxes may adversely impact the Fund's return on its investment in MLPs.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities as a non-principal investment strategy. These investments include Agency Pass-Through Certificates, private mortgage pass-through securities, collateralized mortgage obligations, and commercial mortgage-backed securities, as defined and described below.
Agency Pass-Through Certificates. Agency Pass-Through Certificates are mortgage pass-through certificates representing undivided interests in pools of residential mortgage loans. Distribution of principal and interest on the mortgage loans underlying an Agency Pass-Through Certificate is an obligation of or guaranteed by the Government National Mortgage Association (GNMA, or Ginnie Mae), the Federal National Mortgage Association (FNMA, or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac). GNMA is a wholly owned corporate instrumentality of the United States within the Department of Housing and Urban Development. The guarantee of GNMA with respect to GNMA certificates is backed by the full faith and credit of the United States, and GNMA is authorized to borrow from the United States Treasury in an amount which is at any time sufficient to enable GNMA, with no limitation as to amount, to perform its guarantee.
FNMA is a federally chartered and privately owned corporation organized and existing under federal law. Although the Secretary of the Treasury of the United States has discretionary authority to lend funds to FNMA, neither the United States nor any agency thereof is obligated to finance FNMA's operations or to assist FNMA in any other manner.
FHLMC is a federally chartered corporation organized and existing under federal law, the common stock of which is owned by the Federal Home Loan Banks. Neither the United States nor any agency thereof is obligated to finance FHLMC's operations or to assist FHLMC in any other manner.
The mortgage loans underlying GNMA certificates are partially or fully guaranteed by the Federal Housing Administration or the Veterans Administration, while the mortgage loans underlying FNMA certificates and FHLMC certificates are conventional mortgage loans which are, in some cases, insured by private mortgage insurance companies. Agency Pass-Through Certificates may be issued in a single class with respect to a given pool of mortgage loans or in multiple classes.
The residential mortgage loans evidenced by Agency Pass-Through Certificates and upon which CMOs (as described further below) are based generally are secured by first mortgages on one- to four-family residential dwellings. Such mortgage loans generally have final maturities ranging from 15 to 40 years and generally provide for monthly payments in amounts sufficient to amortize their original principal amounts by the maturity dates. Each monthly payment on such mortgage loans generally includes both an interest component and a principal component, so that the holder of the mortgage loans receives both interest and a partial return of principal in each monthly payment. In general, such mortgage loans can be prepaid by the borrowers at any time without any prepayment penalty. In addition, many such mortgage loans contain a "due-on-sale" clause requiring the loans to be repaid in full upon the sale of the property securing the loans. Because residential mortgage loans generally provide for monthly amortization and may be prepaid in full at any time, the weighted average maturity of a pool of residential mortgage loans is likely to be substantially shorter than its stated final maturity date. The rate at which a pool of residential mortgage loans is prepaid may be influenced by many factors and is not predictable with precision.
Private mortgage pass-through securities ("Private Pass-Throughs"). Private Pass-Throughs are structured similarly to GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by originators of and investors in mortgage loans, including savings and loan associations, mortgage bankers, commercial banks, investment banks and special purpose subsidiaries of the foregoing. These securities usually are backed by a pool of fixed or adjustable rate loans. Since Private Pass-Throughs typically are not guaranteed by an entity having the credit status of GNMA, FNMA or FHLMC, such securities generally are structured with one or more types of credit enhancement. Such credit support falls into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provisions of advances, generally by the entity administering the pool of assets, to ensure that the pass-through of payments due on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default enhances the likelihood of ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be
provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.
The ratings of securities for which third-party credit enhancement provides liquidity protection or protection against losses from default are generally dependent upon the continued creditworthiness of the enhancement provider. The ratings of such securities could be subject to reduction in the event of deterioration in the creditworthiness of the credit enhancement provider even in cases where the delinquency and loss experience on the underlying pool of assets is better than expected.
Collateralized Mortgage Obligations ("CMOs"). CMOs are debt obligations typically issued by a private special-purpose entity and collateralized by residential or commercial mortgage loans or Agency Pass-Through Certificates. The Fund will invest only in CMOs that are rated within the rating categories in which the Fund is otherwise allowed to invest or which are of comparable quality in the judgment of the Advisor. Because CMOs are debt obligations of private entities, payments on CMOs generally are not obligations of or guaranteed by any governmental entity, and their ratings and creditworthiness typically depend, among other factors, on the legal insulation of the issuer and transaction from the consequences of a sponsoring entity's bankruptcy.
CMOs generally are issued in multiple classes, with holders of each class entitled to receive specified portions of the principal payments and prepayments and/or of the interest payments on the underlying mortgage loans. These entitlements can be specified in a wide variety of ways, so that the payment characteristics of various classes may differ greatly from one another. For instance, holders may hold interests in CMO tranches called Z-tranches which defer interest and principal payments until one or other classes of the CMO have been paid in full. In addition, for example:
- In a sequential-pay CMO structure, one class is entitled to receive all principal payments and prepayments on the underlying mortgage loans (and interest on unpaid principal) until the principal of the class is repaid in full, while the remaining classes receive only interest; when the first class is repaid in full, a second class becomes entitled to receive all principal payments and prepayments on the underlying mortgage loans until the class is repaid in full, and so forth.
- A planned amortization class ("PAC") of CMOs is entitled to receive principal on a stated schedule to the extent that it is available from the underlying mortgage loans, thus providing a greater (but not absolute) degree of certainty as to the schedule upon which principal will be repaid.
- An accrual class of CMOs provides for interest to accrue and be added to principal (but not be paid currently) until specified payments have been made on prior classes, at which time the principal of the accrual class (including the accrued interest which was added to principal) and interest thereon begins to be paid from payments on the underlying mortgage loans.
- An interest-only class of CMOs entitles the holder to receive all of the interest and none of the principal on the underlying mortgage loans, while a principal-only class of CMOs entitles the holder to receive all of the principal payments and prepayments and none of the interest on the underlying mortgage loans.
- A floating rate class of CMOs entitles the holder to receive interest at a rate which changes in the same direction and magnitude as changes in a specified index rate. An inverse floating rate class of CMOs entitles the holder to receive interest at a rate which changes in the opposite direction from, and in the same magnitude as or in a multiple of, changes in a specified index rate. Floating rate and inverse floating rate classes also may be subject to "caps" and "floors" on adjustments to the interest rates which they bear.
- A subordinated class of CMOs is subordinated in right of payment to one or more other classes. Such a subordinated class provides some or all of the credit support for the classes that are senior to it by absorbing losses on the underlying mortgage loans before the senior classes absorb any losses. A subordinated class which is subordinated to one or more classes but senior to one or more other classes is sometimes referred to as a "mezzanine" class. A subordinated class generally carries a lower rating than the classes that are senior to it, but may still carry an investment grade rating.
It generally is more difficult to predict the effect of changes in market interest rates on the return on mortgage-backed securities than to predict the effect of such changes on the return of a conventional fixed-rate debt instrument, and the magnitude of such effects may be greater in some cases. The return on interest-only and principal-only mortgage-backed securities is particularly sensitive to changes in interest rates and prepayment speeds. When interest rates decline and prepayment speeds increase, the holder of an interest-only mortgage-backed security may not even recover its initial investment. Similarly, the return on an inverse floating rate CMO is likely to decline more sharply in periods of increasing interest rates than that of a fixed-rate security. For these reasons, interest-only, principal-only and inverse floating rate mortgage-backed securities generally have greater risk than more conventional classes of mortgage-backed securities. The Fund will not invest more than 10% of its total assets in interest-only, principal-only, inverse interest only or inverse floating rate mortgage-backed securities.
Commercial Mortgage-Backed Securities. Commercial mortgage-backed securities include securities that reflect an interest in, and are secured by, mortgage loans on commercial property, such as hotels, office buildings, retail stores, hospitals, and other commercial buildings. These securities may have a lower prepayment uncertainty than other mortgage-backed securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-backed securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans. These risks reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. Commercial mortgage-backed securities may be less liquid and may exhibit greater price volatility than other types of mortgage-backed securities.
Adjustable Rate Mortgage Securities ("ARMS"). The Balanced Fund may invest in ARMS as a non-principal investment strategy. ARMS are pass-through mortgage securities collateralized by mortgages with interest rates that are adjusted from time to time. ARMS also include adjustable rate tranches of CMOs. The adjustments usually are determined in accordance with a predetermined interest rate index and may be subject to certain limits. While the values of ARMS, like other debt securities, generally vary inversely with changes in market interest rates (increasing in value during periods of declining interest rates and decreasing in value during periods of increasing interest rates), the values of ARMS should generally be more resistant to price swings than other debt securities because the interest rates of ARMS move with market interest rates. The adjustable rate feature of ARMS will not, however, eliminate fluctuations in the prices of ARMS, particularly during periods of extreme fluctuations in interest rates.
ARMS typically have caps which limit the maximum amount by which the interest rate may be increased or decreased at periodic intervals or over the life of the loan. To the extent interest rates increase in excess of the caps, ARMS can be expected to behave more like traditional debt securities and to decline in value to a greater extent than would be the case in the absence of such caps. Also, since many adjustable rate mortgages only reset on an annual basis, it can be expected that the prices of ARMS will fluctuate to the extent changes in prevailing interest rates are not immediately reflected in the interest rates payable on the underlying adjustable rate mortgages. The extent to which the prices of ARMS fluctuate with changes in interest rates will also be affected by the indices underlying the ARMS.
OPTIONS TRANSACTIONS
To the extent set forth below, the Fund may purchase put and call options on securities, stock indices, and/or foreign currencies. These transactions will be undertaken for the purpose of reducing risk to the Fund; that is, for "hedging" purposes, or, in the case of options written by the Fund, to produce additional income. Options on futures contracts are discussed above under "-- Futures and Options on Futures."
Options on Securities. As a principal investment strategy, the Fund may purchase put and call options on securities it owns or has the right to acquire. A put option on a security gives the purchaser of the option the right (but not the obligation) to sell, and the writer of the option the obligation to buy, the underlying security at a stated price (the "exercise price") at any time before the option expires. A call option on a security gives the purchaser the right (but not the obligation) to buy, and the writer the obligation to sell, the underlying security at the exercise price at any time before the option expires. The purchase price for a put or call option is the "premium" paid by the purchaser for the right to sell or buy.
The Fund may purchase put options to hedge against a decline in the value of its portfolio. By using put options in this way, the Fund would reduce any profit it might otherwise have realized in the underlying security by the amount of the premium paid for the put option and by transaction costs. In similar fashion, the Fund may purchase call
options to hedge against an increase in the price of securities that the Fund anticipates purchasing in the future. The premium paid for the call option plus any transaction costs will reduce the benefit, if any, realized by the Fund upon exercise of the option, and, unless the price of the underlying security rises sufficiently, the option may expire unexercised.
Options on Stock Indices. As a principal investment strategy, the Fund may purchase put and call options on stock indices. An option on an index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing value of the index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option expressed in dollars times a specified multiple (the "multiplier"). The writer of the option is obligated, for the premium received, to make delivery of this amount. Settlements for index options are always in cash. Gain or loss depends on market movements with respect to specific financial instruments. The multiplier for index options determines the total dollar value per contract of each point in the difference between the exercise price of an option and the current value of the underlying index. Options on different indices may have different multipliers.
Options on Currencies. Foreign currency options are discussed in detail above under " -- Foreign Currency Transactions - Foreign Currency Options."
Writing Call Options. As a principal investment strategy, the Fund may write (sell) covered call options covering up to 25% of the equity securities owned by the Fund. These transactions would be undertaken principally to produce additional income.
Covered Options. The Fund will write options only if they are "covered." In the case of a call option on a security, the option is "covered" if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, cash or other liquid assets in such amount are segregated) upon conversion or exchange of the securities held by the Fund. For a call option on an index or currency, the option is covered if the Fund segregates liquid assets in an amount equal to the contract value of the index or currency. A call option is also covered if the Fund holds a call on the same security, index or currency as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written, or (ii) greater than the exercise price of the call written, provided the difference is maintained by the Fund in segregated liquid assets. A put option on a security, currency or index is "covered" if the Fund segregates liquid assets equal to the exercise price. A put option is also covered if the Fund holds a put on the same security, currency or index as the put written where the exercise price of the put held is (i) equal to or greater than the exercise price of the put written, or (ii) less than the exercise price of the put written, provided the difference is maintained by the Fund in segregated liquid assets. A straddle will be covered when sufficient assets are deposited to meet the Fund's immediate obligations. The Fund may use the same liquid assets to cover both the call and put options where the exercise price of the call and put are the same, or the exercise price of the call is higher than that of the put. In such cases, the Fund will also segregate liquid assets equivalent to the amount, if any, by which the put is "in the money."
Expiration or Exercise of Options. If an option written by the Fund expires unexercised, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by the Fund expires unexercised, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security, currency or index, exercise price, and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires.
The Fund may sell put or call options it has previously purchased, which could result in a net gain or loss depending on whether the amount realized on the sale is more or less than the premium and other transaction costs paid on the put or call option which is sold. Prior to exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series. The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security, currency or index in relation to the exercise price of the option, the volatility of the underlying security, currency or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by the Fund is an asset of the Fund. The premium received for an option written by the Fund is recorded as a deferred credit. The value of an option purchased or written is marked to market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked price.
Risks Associated with Options Transactions. There are several risks associated with options transactions. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events.
During the option period, the covered call writer has, in return for the premium on the option, given up the opportunity to profit from a price increase in the underlying security above the exercise price, but, as long as its obligation as a writer continues, has retained the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill it obligations as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price. If a put or call option purchased by the Fund is not sold when it has remaining value, and if the market price of the underlying security remains equal to or greater than the exercise price (in the case of a put) or remains less than or equal to the exercise price (in the case of a call), the Fund will lose its entire investment in the option. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security.
There can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. If the Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option may expire worthless. If the Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise.
If trading were suspended in an option purchased by the Fund, the Fund would not be able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it had purchased. Except to the extent that a call option on an index written by the Fund is covered by an option on the same index purchased by the Fund, movements in the index may result in a loss to the Fund; however, such losses may be mitigated by changes in the value of the Fund's securities during the period the option was outstanding.
Limitations. The Fund will not invest more than 5% of the value of its total assets in purchased options, provided that options which are "in the money" at the time of purchase may be excluded from this 5% limitation. A call option is "in the money" if the exercise price is lower than the current market price of the underlying security or index, and a put option is "in the money" if the exercise price is higher than the current market price. The Fund's loss exposure in purchasing an option is limited to the sum of the premium paid and the commission or other transaction expenses associated with acquiring the option.
REAL ESTATE INVESTMENT TRUST ("REIT") SECURITIES
The Fund may invest in securities of real estate investment trusts as a principal investment strategy. REITs are publicly traded corporations or trusts that specialize in acquiring, holding, and managing residential, commercial or industrial real estate. A REIT is not taxed at the entity level on income distributed to its shareholders or unitholders if it distributes to shareholders or unitholders at least 90% of its taxable income for each taxable year and complies with regulatory requirements relating to its organization, ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs and Hybrid REITs. An Equity REIT invests the majority of its assets directly in real property and derives its income primarily from rents and from capital gains on real estate appreciation which are realized through property sales. A Mortgage REIT invests the majority of its assets in real estate mortgage loans and services its income primarily from interest payments. A Hybrid REIT combines the characteristics of an Equity REIT and a Mortgage REIT. Although the Fund can invest in all three kinds of REITs, its emphasis is expected to be on investments in Equity REITs.
Because the Fund invests in the real estate industry, it is subject to risks associated with that industry. The real estate industry has been subject to substantial fluctuations and declines on a local, regional and national basis in the past and may continue to be in the future. Real property values and income from real property may decline due to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhoods and in demographics, increases in market interest rates, or other factors. Factors such as these may adversely affect companies which own and operate real estate directly, companies which lend to such companies, and companies which service the real estate industry.
Because the Fund may invests in REITs, it also is subject to risks associated with direct investments in REITs. Equity REITs will be affected by changes in the values of and income from the properties they own, while Mortgage REITs may be affected by the credit quality of the mortgage loans they hold. In addition, REITs are dependent on specialized management skills and on their ability to generate cash flow for operating purposes and to make distributions to shareholders or unitholders. REITs may have limited diversification and are subject to risks associated with obtaining financing for real property, as well as to the risk of self-liquidation. REITs also can be adversely affected by their failure to qualify for tax-free pass-through treatment of their income under the Code or their failure to maintain an exemption from registration under the 1940 Act. By investing in REITs indirectly through the Fund, a shareholder bears not only a proportionate share of the expenses of the Fund, but also may indirectly bear similar expenses of some of the REITs in which it invests.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements as a non-principal investment strategy. Ordinarily, the Fund does not expect its investments in repurchase agreements to exceed 10% of its total assets. However, because the Fund may invest without limit in cash and short-term securities for temporary defensive purposes, there is no limit on the Fund's ability to invest in repurchase agreements. A repurchase agreement involves the purchase by the Fund of securities with the agreement that after a stated period of time, the original seller will buy back the same securities ("collateral") at a predetermined price or yield. Repurchase agreements involve certain risks not associated with direct investments in securities. If the original seller defaults on its obligation to repurchase as a result of its bankruptcy or otherwise, the purchasing Fund will seek to sell the collateral, which could involve costs or delays. Although collateral (which may consist of any fixed income security which is an eligible investment for the Fund) will at all times be maintained in an amount equal to the repurchase price under the agreement (including accrued interest), the Fund would suffer a loss if the proceeds from the sale of the collateral were less than the agreed-upon repurchase price. The Advisor will monitor the creditworthiness of the firms with which the Fund enters into repurchase agreements.
The Fund's custodian will hold the securities underlying any repurchase agreement, or the securities will be part of the Federal Reserve/Treasury Book Entry System. The market value of the collateral underlying the repurchase agreement will be determined on each business day. If at any time the market value of the collateral falls below the repurchase price under the repurchase agreement (including any accrued interest), the Fund will promptly receive additional collateral (so the total collateral is an amount at least equal to the repurchase price plus accrued interest).
ROYALTY TRUSTS
The Fund may invest in publicly-traded royalty trusts as a non-principal investment strategy. Royalty trusts are income-oriented equity investments that indirectly, through the ownership of trust units, provide investors (called "unit holders") with exposure to energy sector assets such as coal, oil and natural gas. A royalty trust receives royalty income from the production of a natural resource and then distributes this income to unit holders less deductions for management fees and capital expenses. The trusts have no physical operations of their own and have no management or employees; rather, they are merely financing vehicles. Other companies mine the resources and pay royalties on those resources to the trust.
The level of royalty income the trust receives is subject to swings in commodity prices and production levels, which can cause distributions of royalty income to be very inconsistent. Commodity prices can fluctuate widely on a month-to-month basis in response to a variety of factors that are beyond the control of the trust, including political conditions in a major commodity producing region, especially the Middle East in the case of crude oil, worldwide economic conditions, weather conditions, the supply and price of domestic and foreign energy resources, the level of consumer demand, the price and availability of alternative energy resources, the proximity to, and capacity of,
transportation facilities, the effect of worldwide energy conservation measures, and the nature and extent of governmental regulation and taxation. When prices decline, the trust is affected in two ways. First, net royalties are reduced. Second, exploration and development activity on the underlying properties may decline as some projects may become uneconomic and are either delayed or eliminated. It is impossible to predict future crude oil and natural gas price movements, and this reduces the predictability of future cash distributions to unit holders.
The assets of the trust are depleting assets and, if the operators developing the underlying properties do not perform additional development projects, the assets may deplete faster than expected. In some cases, operators may sacrifice opportunities to reinvest in the business in order to maintain or increase the level of royalty income passed onto the trust. Eventually, the assets of the trust will cease to produce in commercial quantities and the trust will cease to receive royalties. There is no guarantee that distributions made to a unit holder over the life of these depleting assets will equal or exceed the purchase price paid by the unit holder. If the business starts to lose money, the trust can reduce or even eliminate distributions.
Trust unit holders generally have limited or no voting rights and limited ability to enforce the trust's rights against the current or future operators developing the underlying properties. For example, there is no requirement for annual meetings of trust unit holders or for an annual election of the trustee(s). In some cases, the limited liability of unit holders is also uncertain. The unit holders are not protected from the liabilities of the trust to the same extent that a shareholder would be protected from a corporation's liabilities, and could theoretically have unlimited liability for the actions of the trust.
Royalty trusts are structured to avoid taxes at the entity level. In a traditional corporate tax structure, net income is taxed at the corporate level and again as dividends in the hands of the unit holder. An income trust, if properly structured, should not be subject to U.S Federal income tax. This flow-through structure means that the distributions to unit holders are generally higher than dividends from an equivalent corporate entity. Each unit holder is taxable on this pro rata share of the trust's net income. Distributions from U.S. royalty trusts are considered ordinary income to the holder and are taxed accordingly. Due to the depleting nature of oil and gas assets, a depletion deduction is available to unit holders to defer taxes on royalty income, enhancing the taxable equivalent yield. The flow-through tax structure of royalty trusts could be challenged under existing laws, or the tax laws could change.
SHORT-TERM TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other conditions, the Fund may temporarily invest without limit in a variety of short-term instruments such as rated commercial paper and variable amount master demand notes; U.S. dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the U.S. government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of the Fund; securities of other mutual funds that invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to an advisory fee); and other similar high-quality short-term U.S. dollar-denominated obligations. The other mutual funds in which the Fund may so invest include money market funds advised by the Advisor.
Short-term investments and repurchase agreements may be entered into on a joint basis by the Fund and other funds advised by the Advisor to the extent permitted by an exemptive order issued by the SEC with respect to the Fund. A brief description of certain kinds of short-term instruments follows:
Commercial Paper. Commercial paper consists of unsecured promissory notes issued by corporations. Issues of commercial paper normally have maturities of less than nine months and fixed rates of return. The Fund may purchase commercial paper consisting of issues rated at the time of purchase within the two highest rating categories by Standard & Poor's, Fitch or Moody's, or which have been assigned an equivalent rating by another nationally recognized statistical rating organization. The Fund also may invest in commercial paper that is not rated but that is determined by the Advisor to be of comparable quality to instruments that are so rated. For a description of the rating categories of Standard & Poor's, Fitch and Moody's, see Appendix A.
Bankers' Acceptances. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the full amount of the instrument upon maturity.
Variable Amount Master Demand Notes. Variable amount master demand notes are unsecured demand notes that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate according to the terms of the instrument. Because master demand notes are direct lending arrangements between the Fund and the issuer, they are not normally traded. Although there is no secondary market in the notes, the Fund may demand payment of principal and accrued interest at any time. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, and other business concerns) must satisfy the same criteria as set forth above for commercial paper. The Advisor will consider the earning power, cash flow and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand.
Variable Rate Demand Obligations. Variable rate demand obligations ("VRDO") are securities in which the interest rate is adjusted at pre-designated periodic intervals. VRDOs may include a demand feature which is a put that entitles the holder to receive the principal amount of the underlying security or securities and which may be exercised either at any time on no more than 30 days' notice or at specified intervals not exceeding 397 calendar days on no more than 30 days' notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis as a non-principal investment strategy. When such a transaction is negotiated, the purchase price is fixed at the time the purchase commitment is entered, but delivery of and payment for the securities take place at a later date. The Fund will not accrue income with respect to securities purchased on a when-issued or delayed delivery basis prior to their stated delivery date. Pending delivery of the securities, the Fund will segregate cash or liquid securities in an amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed delivery basis exposes the Fund to risk because the securities may decrease in value prior to delivery. In addition, the Fund's purchase of securities on a when-issued or delayed delivery basis while remaining substantially fully invested could increase the amount of the Fund's total assets that are subject to market risk, resulting in increased sensitivity of net asset value to changes in market prices. A seller's failure to deliver securities to the Fund could prevent the Fund from realizing a price or yield considered to be advantageous.
When the Fund agrees to purchase securities on a when-issued or delayed delivery basis, the Fund will segregate cash or liquid securities in an amount sufficient to meet the Fund's purchase commitments. It may be expected that the Fund's net assets will fluctuate to a greater degree when it sets aside securities to cover such purchase commitments than when it sets aside cash. In addition, because the Fund will set aside cash or liquid securities to satisfy its purchase commitments, its liquidity and the ability of the Advisor to manage it might be affected in the event its commitments to purchase when-issued or delayed delivery securities ever became significant. Under normal market conditions, however, the Fund's commitments to purchase when-issued or delayed delivery securities will not exceed 25% of the value of its total assets.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the Prospectus and under the caption "Additional Information Concerning Fund Investments" above, the Fund is subject to the investment restrictions set forth below. The investment restrictions set forth in paragraphs 1 through 8 below are fundamental and cannot be changed with respect to the Fund without approval by the holders of a majority of the outstanding shares of the Fund as defined in the 1940 Act, i.e., by the lesser of the vote of (a) 67% of the shares of the Fund present at a meeting where more than 50% of the outstanding shares are present in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund.
The Fund will not:
1. Concentrate its investments in a particular industry. For purposes of this limitation, the U.S. Government, and state or municipal governments and their political subdivisions are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the 1940 Act, as interpreted or modified from time to time by any regulatory authority having jurisdiction.
2. Borrow money or issue senior securities, except as permitted under the 1940 Act, as interpreted or modified from time to time by any regulatory authority having jurisdiction.
3. With respect to 75% of its total assets, purchase securities of an issuer (other than (i) securities issued by other investment companies, (ii) securities issued by the U.S. Government, its agencies, instrumentalities or authorities, or (iii) repurchase agreements fully collateralized by U.S. Government securities) if (a) such purchase would, at the time, cause more than 5% of the Fund's total assets taken at market value to be invested in the securities of such issuer; or (b) such purchase would, at the time, result in more than 10% of the outstanding voting securities of such issuer being held by the Fund.
4. Invest in companies for the primary purpose of control or management.
5. Purchase physical commodities or contracts relating to physical commodities.
6. Purchase or sell real estate unless as a result of ownership of securities or other instruments, but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or interests therein or in securities of companies that deal in real estate or mortgages.
7. Act as an underwriter of securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, it may be deemed an underwriter under applicable laws.
8. Make loans except as permitted under the 1940 Act, as interpreted or modified from time to time by any regulatory authority having jurisdiction.
For purposes of applying the limitation set forth in number 1 above, according to the current interpretation by the SEC, the Fund would be concentrated in an industry if 25% or more of its total assets, based on current market value at the time of purchase, were invested in that industry. The Fund will use industry classifications provided by the Global Industry Classification System.
For purposes of applying the limitation set forth in number 2 above, under the 1940 Act as currently in effect, the Fund is not permitted to issue senior securities, except that the Fund may borrow from any bank if immediately after such borrowing the value of the Fund's total assets is at least 300% of the principal amount of all of the Fund's borrowings (i.e., the principal amount of the borrowings may not exceed 33 1/3% of the Fund's total assets). In the event that such asset coverage shall at any time fall below 300% the Fund shall, within three days thereafter (not including Sundays and holidays) reduce the amount of its borrowings to an extent that the asset coverage of such borrowing shall be at least 300%.
For purposes of applying the limitation set forth in number 8 above, there
are no limitations with respect to unsecured loans made by the Fund to an
unaffiliated party. However, when the Fund loans its portfolio securities, the
obligation on the part of the Fund to return collateral upon termination of the
loan could be deemed to involve the issuance of a senior security within the
meaning of Section 18(f) of the 1940 Act. In order to avoid violation of Section
18(f), the Fund may not make a loan of portfolio securities if, as a result,
more than one-third of its total asset value (at market value computed at the
time of making a loan) would be on loan.
The following restrictions are non-fundamental and may be changed by the Fund's Board of Directors without a shareholder vote:
The Fund will not:
1. Invest more than 15% of its net assets in all forms of illiquid investments.
2. Borrow money in an amount exceeding 10% of the borrowing Fund's total assets. The Fund will not borrow money for leverage purposes. For the purpose of this investment restriction, the use of options and futures transactions and the purchase of securities on a when-issued or delayed delivery basis shall not be
deemed the borrowing of money. The Fund will not make additional investments while its borrowings exceed 5% of total assets.
3. Make short sales of securities.
4. Lend portfolio securities representing in excess of one-third of the value of its total assets.
5. Pledge any assets, except in connection with any permitted borrowing and then in amounts not in excess of one-third of the Fund's total assets, provided that for the purposes of this restriction, margin deposits, security interests, liens and collateral arrangements with respect to options, futures contracts, options on futures contracts, and other permitted investments and techniques are not deemed to be a pledge of assets for purposes of this limitation.
6. Acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on subparagraph (F) or subparagraph (G) of Section 12(d)(1) of the 1940 Act.
With respect to the non-fundamental restriction set forth in number 1 above, the Fund will monitor portfolio liquidity on an ongoing basis and, in the event more than 15% of the Fund's net assets are invested in illiquid investments, the Fund will reduce its holdings of illiquid securities in an orderly fashion in order to maintain adequate liquidity.
The Board of Directors has adopted guidelines and procedures under which the Fund's investment advisor is to determine whether the following types of securities which may be held by the Fund are "liquid" and to report to the Board concerning its determinations: (i) securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; (ii) commercial paper issued in reliance on the "private placement" exemption from registration under Section 4(2) of the Securities Act of 1933, whether or not it is eligible for resale pursuant to Rule 144A; (iii) interest-only and principal-only, inverse floating and inverse interest-only securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities; and (iv) municipal leases and securities that represent interests in municipal leases.
For determining compliance with its investment restriction relating to
industry concentration, the Fund classifies asset-backed securities in its
portfolio in separate industries based upon a combination of the industry of the
issuer or sponsor and the type of collateral. The industry of the issuer or
sponsor and the type of collateral will be determined by the Advisor. For
example, an asset-backed security known as "Money Store 94-D A2" would be
classified as follows: the issuer or sponsor of the security is The Money Store,
a personal finance company, and the collateral underlying the security is
automobile receivables. Therefore, the industry classification would be Personal
Finance Companies -- Automobile. Similarly, an asset-backed security known as
"Midlantic Automobile Grantor Trust 1992-1 B" would be classified as follows:
the issuer or sponsor of the security is Midlantic National Bank, a banking
organization, and the collateral underlying the security is automobile
receivables. Therefore, the industry classification would be Banks --
Automobile. Thus, an issuer or sponsor may be included in more than one
"industry" classification, as may a particular type of collateral.
With respect to the Fund's adoption of an investment strategy pursuant to Rule 35d-1 of the 1940 Act, whereby at least 80% of the Fund's net assets, plus the amount of any borrowings for investment purposes, must be invested in the strategy suggested by the Fund's name, a policy has been adopted by the Fund to provide shareholders with at least 60 days notice in the event of a planned change to the investment strategy. Such notice to shareholders will meet the requirements of Rule 35d-1(c).
DISCLOSURE OF PORTFOLIO HOLDINGS
PUBLIC DISCLOSURE
Each Fund in the First American Fund Family is required by the SEC to file its portfolio holdings schedule with the SEC on a quarterly basis. This schedule is filed with each Fund's annual and semi-annual reports on form N-CSR for the second and fourth fiscal quarters and on Form N-Q for the first and third fiscal quarters. These filings are generally available within sixty days of the end of the relevant Fund's fiscal quarter. In addition, the First American Fund Family makes portfolio holdings information publicly available for all First American Funds other than Equity
Index Fund, Mid Cap Index Fund and Small Cap Index Fund (the "Index Funds," series of FAIF), the series of FAF (the "Money Market Funds"), which are money market funds, and the series of the Mount Vernon Trust by posting the information on the First American Funds website on a quarterly basis. The Funds will attempt to post such information within ten business days of the quarter end. Until such time as it is posted, it will be Undisclosed Holdings Information, as defined below, and subject to the Funds' procedures regarding the disclosure of Undisclosed Holdings Information.
NONPUBLIC DISCLOSURE
The Funds' board of directors has adopted policies and procedures (the "Disclosure Policies"), which prohibit the release of information concerning portfolio holdings, or information derived therefrom ("Undisclosed Holdings Information"), that has not been made public through SEC filings or the website. Different exceptions to this prohibition are made depending on the type of third party that receives the Undisclosed Holdings Information. The Disclosure Policies are designed to prevent the use of portfolio holdings information to trade against the Funds, or otherwise use the information in a way that would harm the Funds, and to prevent selected investors from having nonpublic information that will allow them to make advantageous decisions with respect to purchasing and selling Fund shares.
Because the portfolios of the Index Funds generally mirror the composition of published indices, the Index Funds are not subject to the Disclosure Policies. In addition, the Money Market Funds are not subject to the Disclosure Policies because these Funds hold only short-term money market securities that generally do not vary significantly in value over short periods of time. The Mount Vernon Trust is not subject to the Disclosure Policies because the series of the trust are not available to the general public, but are only offered in connection with the investment of collateral received in connection with securities lending. Because of the types of securities held by, or the limited purpose of, the foregoing Funds, such Funds' portfolio holdings information would not be subject to the types of misuses that the Disclosure Policies are designed to prevent.
Disclosure within FAF Advisors and Its Affiliates and to Fund Directors.
Undisclosed Holdings Information and information derived therefrom is provided,
or otherwise made available, on a daily basis (a) without prior approval, to
individuals who are employed by FAF Advisors and who have a need to know the
information, such as investment, compliance and treasury personnel, and (b) to
individuals employed by affiliates of FAF Advisors who are not otherwise
entitled to receive such information under "Disclosure to Fund Service Providers
and Prospective Service Providers," below, if (1) such individuals are subject
to FAF Advisors Code of Ethics, or that of an affiliate; (2) the fund to which
such information relates is subject to FAF Advisors' market timing review; and
(3) FAF Advisors' Internal Compliance Controls Committee has determined that
improper use of such information by such individuals is not likely to affect the
funds in any material respect based on factors such as the types of funds to
which the Undisclosed Holdings Information relate, the flows of investment into
such funds, and reports of portfolio managers regarding the stability of assets
in such funds.
Undisclosed Holdings Information and information derived therefrom also may be provided to directors of the First American Funds and their service providers, such as counsel, as part of the materials for regular or special board of directors meetings without prior approval.
Disclosure to Fund Service Providers and Prospective Service Providers. Undisclosed Holdings Information and information derived therefrom is provided, or otherwise made available, on a daily basis to the Funds' advisor (as described above), sub-advisors, custodians, administrator, transfer agent, securities lending agent, and outside accountant. Undisclosed Holdings Information may also be provided, as necessary, to outside counsel, entities that provide Class B share financing, proxy voting organizations, financial printers, pricing services and other organizations that provide or propose to provide services to the First American Funds. Prior to receiving Undisclosed Holdings Information, a service provider must enter into a written agreement with the Funds to maintain the information in confidence, to use the information only for the purpose for which it is provided, and not to trade on the basis of any such information that is material nonpublic information.
Disclosure to Fund Ranking and Ratings Organizations. Undisclosed Holdings Information and information derived therefrom may be provided to organizations that provide mutual fund rankings and ratings, such as Morningstar, Lipper, Moody's, and Standard & Poor's, and to entities that provide investment coverage and/or analytical information
regarding a Fund's portfolio, provided that the recipient has entered into a written agreement with the Fund to maintain the information in confidence, to use the information only for the purpose for which it is provided, and not to trade on the basis of any such information that is material nonpublic information.
Disclosure to Investors, Prospective Investors, and Investor Consultants. The Disclosure Policies provide that Undisclosed Holdings Information and information derived therefrom may be provided to investors, prospective investors, or investor consultants with the prior approval of the Funds' Chief Compliance Officer in the specific instance. The Chief Compliance Officer will only approve such disclosure after concluding that it is in the best interests of the Fund in question and its shareholders and if the recipient has agreed in writing to maintain the information in confidence and not to trade on the basis of any such information that is material nonpublic information. In considering a request for such approval, the Chief Compliance Officer also shall identify and consider any conflict of interest between the Fund and its shareholders, on the one hand, and the Advisor and its affiliates, on the other, which is presented by the request. If the Chief Compliance Officer determines that there is a conflict of interest between the Fund and its shareholders on the one hand and the Advisor and its affiliates, on the other, he or she will approve such disclosure only if he or she determines that such conflict is materially mitigated by the execution of a confidentiality agreement and that, despite such conflict of interest, disclosure is in the best interests of the relevant Fund and its shareholders. The Funds' Chief Compliance Officer is responsible for the creation of a written record that states the basis for the conclusion that the disclosure is in the best interests of the relevant Fund and its shareholders.
Disclosure as Required by Applicable Law. Undisclosed Holdings Information and information derived therefrom may be disclosed to any person as required by applicable laws, rules and regulations. For example, such information may be disclosed in response to regulatory requests for information or in response to legal process in litigation matters.
Disclosure of Limited Holdings. Portfolio managers, analysts and other personnel of the Advisor and any sub-advisor may discuss portfolio information in interviews with members of the media, or in due diligence or similar meetings with clients or prospective purchasers of Fund shares or their representatives. In no case will a material number of portfolio holdings be provided that have not yet been posted on the First American Funds website or filed with the SEC unless the recipient has entered into a written agreement with the Funds to maintain the confidentiality of such information and not to trade on the basis of any such information that is material nonpublic information. In addition, brokers and dealers may be provided with individual portfolio holdings in order to obtain bids or bid and asked prices (if securities held by a Fund are not priced by the Fund's regular pricing services) or in connection with portfolio transactions.
No Compensation or Consideration. Neither the Funds, nor the Advisor or any sub-advisor or any affiliate of either, including the Chief Compliance Officer or his or her designee, will solicit or accept any compensation or other consideration in connection with the disclosure of Undisclosed Holdings Information or information derived therefrom.
Chief Compliance Officer Reports to Fund Board. The Funds' Chief Compliance Officer must provide a quarterly report to the Funds' board of directors addressing exceptions to these policies and procedures during the preceding quarter, if any.
Detective and Corrective Action. Any unauthorized release of Undisclosed Holdings Information which comes to the attention of an employee of the Advisor shall be reported to the Chief Compliance Officer. The Chief Compliance Officer shall recommend an appropriate sanction to be imposed by the individual's supervisor if the individual releasing such information is an employee of the Advisor or other appropriate action if the individual is not an employee of the Advisor.
Designee of Chief Compliance Officer. In the event of the absence or unavailability of the Chief Compliance Officer, all of the obligations of the Chief Compliance Officer may be performed by his or her designee.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIF are listed below, together with their business addresses and their principal occupations during the past five years. The Board of Directors is generally responsible for the overall operation and management of FAIF. Each of the Directors in an independent director.
INDEPENDENT DIRECTORS
NUMBER OF
PORTFOLIOS IN OTHER
NAME, ADDRESS, POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS
AND YEAR OF HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
BIRTH WITH FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR DIRECTOR*
--------------------- ----------- ------------------------ ---------------------------- ------------------- ----------------
Benjamin R. Director Term expiring earlier Retired; Senior Financial First American None
Field III, of death, resignation, Advisor, Bemis Company, Inc. Funds Complex:
P.O. Box 1329, removal, from May 2002 through twelve registered
Minneapolis, disqualification, or February 2004 investment
Minnesota successor duly elected companies,
55440-1329 and qualified. including 63
(1938) Director of FAIF since portfolios
September 2003
Roger A. Gibson, Director Term expiring earlier Director, Charterhouse First American None
P.O. Box 1329, of death, resignation, Group, Inc., a private Funds Complex:
Minneapolis, removal, equity firm, since October twelve registered
Minnesota disqualification, or 2005; Vice President and investment
55440-1329 successor duly elected Chief Operating Officer, companies,
(1946) and qualified. Cargo - United Airlines, including 63
Director of FAIF since from July 2001 through portfolios
October 1997. retirement in July 2004
Victoria J. Herget, Director Term expiring earlier Investment consultant and First American None
P.O. Box 1329, of death, resignation, non-profit board member Funds Complex:
Minneapolis, removal, since 2001 twelve registered
Minnesota disqualification, or investment
55440-1329 successor duly elected companies,
(1951) and qualified. including 63
Director of FAIF since portfolios
September 2003
John P. Kayser Director Term expiring earlier Retired; Principal from 1983 First American None
P.O. Box 1329, of death, resignation, to 2004 and Chief Financial Funds Complex:
Minneapolis, removal, Officer and Chief twelve registered
Minnesota disqualification, or Administrative Officer from investment
55440-1329 successor duly elected 1988 to 2002, William Blair companies,
(1949) and qualified. & Company, LLC. including 63
Director of FAIF since portfolios
October 2006
Leonard W. Kedrowski, Director Term expiring earlier Owner and President, First American None
P.O. Box 1329, of death, resignation, Executive and Management Funds Complex:
Minneapolis, removal, Consulting, Inc., a twelve registered
Minnesota disqualification, or management consulting firm; investment
55440-1329 successor duly elected Board member, GC McGuiggan companies,
(1941) and qualified. Corporation (dba Smyth including 63
Director of FAIF since Companies), a label printer; portfolios
November 1993 former Chief Executive
Officer, Creative Promotions
International, LLC, a
promotional award programs
and products company,
through October 2003
Richard K. Riederer, Director Term expiring earlier Owner and CEO, RKR First American Cleveland-Cliffs
P.O. Box 1329, of death, resignation, Consultants, Inc. and Funds Complex: Inc. (a
Minneapolis, removal, non-profit board member twelve registered producer of
Minnesota disqualification, or since 2005 investment iron ore
55440-1329 successor duly elected companies, pellets)
(1944) and qualified. including 63
Director of FAIF since portfolios
August 2001
Joseph D. Strauss, Director Term expiring earlier Attorney At Law, Owner and First American None
P.O. Box 1329, of death, resignation, President, Strauss Funds Complex:
Minneapolis, removal, Management Company, a twelve registered
Minnesota disqualification, or Minnesota holding company investment
55440-1329 successor duly elected for various organizational companies,
(1940) and qualified. management business including 63
Director of FAIF since ventures; Owner, Chairman portfolios
September 1991 and Chief Executive Officer,
Community Resource
Partnerships, Inc., a
strategic planning,
operations management,
government relations,
transportation planning and
public relations
organization; Owner,
|
NUMBER OF
PORTFOLIOS IN OTHER
NAME, ADDRESS, POSITION(S) TERM OF OFFICE FUND COMPLEX DIRECTORSHIPS
AND YEAR OF HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
BIRTH WITH FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR DIRECTOR*
--------------------- ----------- ------------------------ ---------------------------- ------------------- ----------------
Chairman and Chief Executive
Officer, Excensus(TM) LLC, a
strategic demographic
planning and application
development firm, since 2001
Virginia L. Stringer, Chair; Chair term three Governance consultant and First American None
P.O. Box 1329, Director years. Director term non-profit board member; Funds Complex:
Minneapolis, expiring earlier of former Owner and President, twelve registered
Minnesota death, resignation, Strategic Management investment
55440-1329 removal, Resources, Inc., a companies,
(1944) disqualification, or management consulting firm; including 63
successor duly elected Executive Consultant for portfolios
and qualified. Chair State Farm Insurance Company
of FAIF's Board since through 2003
September 1997;
Director of FAIF since
September 1987
James M. Wade, Director Term expiring earlier Owner and President, Jim First American None
P.O. Box 1329, of death, resignation, Wade Homes, a homebuilding Funds Complex:
Minneapolis, removal, company twelve registered
Minnesota disqualification, or investment
55440-1329 successor duly elected companies,
(1943) and qualified. including 63
Director of FAIF since portfolios
August 2001
|
EXECUTIVE OFFICERS
TERM OF OFFICE
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF
YEAR OF BIRTH WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
----------------------- ----------------- ------------------- ------------------------------------------------------
Thomas S. Schreier, President & Re-elected by the Chief Executive Officer and, since September 2007,
Jr., FAF Advisors, Vice President Board annually; Chief Investment Officer, FAF Advisors, Inc.
Inc., - Investments President of FAIF
800 Nicollet Mall, since February 2001
Minneapolis,
Minnesota 55402
(1962)*
Jeffery M. Wilson, Vice President Re-elected by the Senior Vice President, FAF Advisors, Inc.
FAF Advisors, Inc. - Administration Board annually;
800 Nicollet Mall, Vice President -
Minneapolis, Administration of
Minnesota 55402 FAIF since March
(1956)* 2000
Charles D. Gariboldi, Treasurer Re-elected by the Mutual Funds Treasurer, FAF Advisors, Inc., since
Jr. FAF Advisors, Board annually; October 2004; prior thereto, Vice President -
Inc. Treasurer of FAIF Investment Accounting and Fund Treasurer, Thrivent
800 Nicollet Mall, Since October 2004 Financial for Lutherans
Minneapolis,
Minnesota 55402
(1959)*
Jill M. Stevenson, Assistant Re-elected by the Assistant Mutual Funds Treasurer, FAF Advisors, Inc.
U.S. Bancorp Asset Treasurer Board annually; since September 2005; Director, Senior Project
Management, Inc. Assistant Manager, FAF Advisors, Inc. from May 2003 to September
800 Nicollet Mall, Treasurer of FAIF 2005; prior thereto, Vice President, Director of
Minneapolis, since September Operations, Paladin Investment Associates, LLC
Minnesota 55402 2005
(1965)*
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TERM OF OFFICE
NAME, ADDRESS, AND POSITION(S) HELD AND LENGTH OF
YEAR OF BIRTH WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
----------------------- ----------------- ------------------- ------------------------------------------------------
David H. Lui, Chief Compliance Re-elected by the Chief Compliance Officer, FAF Advisors, Inc. since
U.S. Bancorp Asset Officer Board annually; March 2005; Chief Compliance Officer, Franklin
Management, Inc. Chief Compliance Advisors, Inc. and Chief Compliance Counsel, Franklin
800 Nicollet Mall, Officer of FAIF Templeton Investments from March 2004 to March 2005;
Minneapolis, since prior thereto, Vice President, Charles Schwab & Co.,
Minnesota 55402 March 2005 Inc.
(1960) *
Jason Mitchell Anti-Money Re-elected by the Compliance Manager, FAF Advisors, Inc., since June
FAF Advisors, Inc. Laundering Board annually; 2006; prior thereto, Compliance Analyst, FAF Advisors,
800 Nicollet Mall Officer Anti-Money Inc., from October 2004 through June 2006; prior
Minneapolis, Laundering Officer thereto, Senior Systems Helpdesk Analyst, Wachovia
Minnesota 55402 of FAIF since Retirement Services, from November 2002 through
(1976) * September 2006 October 2004; prior thereto, Senior Retirement Plan
Specialist, PFPC, Inc.
Kathleen L. Secretary Re-elected by the Deputy General Counsel, FAF Advisors, Inc., since
Prudhomme, Board annually; November 2004; prior thereto, Partner, Dorsey &
FAF Advisors, Inc. Secretary of FAIF Whitney LLP, a Minneapolis- based law firm
800 Nicollet Mall, since December
Minneapolis, 2004; Assistant
Minnesota 55402 Secretary of FAIF
(1953) * from September
1998 through
December 2004
Brett L. Agnew, Assistant Re-elected by the Counsel, FAF Advisors, Inc., since August 2004; prior
FAF Advisors, Inc. Secretary Board annually; thereto, Senior Counsel, Thrivent Financial for
800 Nicollet Mall Assistant Lutherans
Minneapolis, Minnesota Secretary of FAIF
55402 (1971)* since December 2004
James D. Alt, Assistant Re-elected by the Partner, Dorsey & Whitney LLP, a Minneapolis-based law
50 South Sixth Secretary Board annually; firm
Street, Suite 1500, Assistant
Minneapolis, Secretary of FAIF
Minnesota 55402 (1951) since December
2004; Secretary of
FAIF from June
2002 through
December 2004;
Assistant
Secretary of FAIF
from September
1998 through June
2002
James R. Arnold, Assistant Re-elected by the Senior Vice President, U.S. Bancorp Fund Services, LLC
615 E. Michigan Secretary Board annually;
Street, Milwaukee, Assistant
Wisconsin 53202 Secretary of FAIF
(1957)* since June 2003
Richard J. Ertel Assistant Re-elected by the Counsel, FAF Advisors, Inc., since May 2006; prior
FAF Advisors, Inc. Secretary Board annually; thereto, Counsel, Ameriprise Financial Services, Inc.
800 Nicollet Mall, Assistant from September 2004 to May 2006; prior thereto,
Minneapolis, Secretary of FAIF Counsel, FAF Advisors, Inc. from May 2003 to August
Minnesota 55402 since June 2006 2004; prior to May 2003, Associate Counsel, Hartford
(1967)* and from June 2003 Life and Accident Insurance Company.
through August 2004
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STANDING COMMITTEES OF THE BOARD OF DIRECTORS
There are currently three standing committees of the FAIF Board of Directors: Audit Committee, Pricing Committee and Governance Committee.
NUMBER OF FUND
COMPLEX
COMMITTEE
MEETINGS HELD
DURING FAIF'S
FISCAL YEAR
COMMITTEE FUNCTION COMMITTEE MEMBERS ENDED 10/31/07
--------------------------------------------------------- ------------------------- --------------
Audit The purposes of the Committee are (1) to oversee the Leonard W. Kedrowski 5
Committee Funds' accounting and financial reporting policies and (Chair)
practices, their internal controls and, as appropriate, Benjamin R. Field III
the internal controls of certain service providers; (2) John P. Kayser
to oversee the quality of the Funds' financial Richard K. Riederer
statements and the independent audit thereof; (3) to Virginia L. Stringer
assist Board oversight of the Funds' compliance with (ex-officio)
legal and regulatory requirements; and (4) to act as a
liaison between the Funds' independent auditors and the
full Board of Directors. The Audit Committee, together
with the Board of Directors, has the ultimate authority
and responsibility to select, evaluate and, where
appropriate, replace the outside auditor (or to
nominate the outside auditor to be proposed for
shareholder approval in any proxy statement).
Pricing The Committee is responsible for valuing portfolio Roger A. Gibson (Chair) 4
Committee securities for which market quotations are not readily James M. Wade
available, pursuant to procedures established by the Benjamin R. Field III
Board of Directors. Virginia L. Stringer
(ex-officio)
Governance The Committee has responsibilities relating to (1) Joseph D. Strauss (Chair) 4
Committee Board and Committee composition (including, James M. Wade
interviewing and recommending to the Board nominees for Victoria J. Herget
election as directors; reviewing the independence of Virginia L. Stringer
all independent directors; reviewing Board composition (ex-officio)
to determine the appropriateness of adding individuals
with different backgrounds or skills; reporting to the
Board on which current and potential members of the
Audit Committee qualify as Audit Committee Financial
Experts; recommending a successor to the Board Chair
when a vacancy occurs; consulting with the Board Chair
on Committee assignments; and in anticipation of the
Board's request for shareholder approval of a slate of
directors, recommending to the Board the slate of
directors to be presented for Board and shareholder
approval); (2) Committee structure (including, at least
annually, reviewing each Committee's structure and
membership and reviewing each Committee's charter and
suggesting changes thereto); (3) director education
(including developing an annual education calendar;
monitoring independent director attendance at
educational seminars and conferences; developing and
conducting orientation sessions for new independent
directors; and managing the Board's education program
in a cost-effective manner); and (4) governance
practices (including reviewing and making
recommendations regarding director compensation and
director expenses; monitoring director investments in
the Funds; monitoring compliance with director
retirement policies; reviewing compliance with the
prohibition from serving on the board of directors of
mutual funds that are not part of the First American
Fund Complex; if requested, assisting the Board Chair
in overseeing self-evaluation process; in collaboration
with outside counsel, developing policies and
procedures addressing matters which should come before
the Committee in the proper exercise of its duties;
reviewing the Board's adherence to industry "best
practices;" reviewing and recommending changes in Board
governance policies, procedures and practices;
reporting the Committee's activities to the Board and
making such recommendations; reviewing and, as
appropriate; recommending that the Board make changes
to the Committee's charter).
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In addition to the above committees, the Board of Directors also appoints a Fund Review Liaison. The responsibility of the Fund Review Liaison is to lead the Board of Directors, together with the Board Chair, in evaluating Fund performance, Fund service provider contracts and arrangements for execution of Fund trades. Ms. Herget is the current Fund Review Liaison.
The Governance Committee will consider shareholder recommendations for director nominees in the event there is a vacancy on the Board of Directors or in connection with any special shareholders meeting which is called for the purpose of electing directors. FAIF does not hold regularly scheduled annual shareholders meetings. There are no
differences in the manner in which the Governance Committee evaluates nominees for director based on whether the nominee is recommended by a shareholder.
A shareholder who wishes to recommend a director nominee should submit his or her recommendation in writing to the Chair of the Board (Ms. Stringer) or the Chair of the Governance Committee (Mr. Strauss), in either case at First American Funds, P.O. Box 1329, Minneapolis, Minnesota 55440-1329. At a minimum, the recommendation should include:
- the name, address, and business, educational, and/or other pertinent background of the person being recommended;
- a statement concerning whether the person is "independent" within the meaning of New York Stock Exchange and American Stock Exchange listing standards and is not an "interested person" as defined in the Investment Company Act of 1940;
- any other information that the Fund would be required to include in a proxy statement concerning the person if he or she was nominated; and
- the name and address of the person submitting the recommendation, together with the number of Fund shares held by such person and the period for which the shares have been held.
The recommendation also can include any additional information which the person submitting it believes would assist the Governance Committee in evaluating the recommendation. Shareholder recommendations for nominations to the Board will be accepted on an ongoing basis and will be kept on file for consideration when there is a vacancy on the Board or prior to a shareholders meeting called for the purpose of electing directors.
FUND SHARES OWNED BY THE DIRECTORS
The information in the table below discloses the dollar ranges of (i) each Director's beneficial ownership in FAIF, and (ii) each Director's aggregate beneficial ownership in all funds within the First American Funds complex, including in each case the value of fund shares elected by Directors in the directors' deferred compensation plan.
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY EQUITY SECURITIES IN THE
NAME OF DIRECTOR SECURITIES IN FAIF FIRST AMERICAN FUNDS COMPLEX*
---------------- ---------------------- -----------------------------
Benjamin R. Field III $10,001-$50,000 Over $100,000
Roger A. Gibson Over $100,000 Over $100,000
Victoria J. Herget Over $100,000 Over $100,000
John P. Kayser Over $100,000 Over $100,000
Leonard W. Kedrowski Over $100,000 Over $100,000
Richard K. Riederer Over $100,000 Over $100,000
Joseph D. Strauss Over $100,000 Over $100,000
Virginia L. Stringer Over $100,000 Over $100,000
James M. Wade Over $100,000 Over $100,000
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As of October 31, 2007, none of the independent Directors or their
immediate family members owned, beneficially, or of record, any securities in
(i) an investment advisor or principal underwriter of the Funds or (ii) a person
(other than a registered investment company) directly of indirectly controlling,
controlled by, or under common control with an investment advisor or principal
underwriter of the Funds.
COMPENSATION
The First American Family of Funds, which includes FAIF, FAF, FASF, Mount Vernon Trust, and FACEF, currently pays directors who are not paid employees or affiliates of the Funds an annual retainer of $115,000 ($215,000 in the case of the Chair). The Fund Review Liaison and the Audit Committee Chair each receive an additional annual retainer of $20,000. The other standing Committee Chairs receive an additional annual retainer of $15,000. In addition, directors are paid the following fees for attending Board and committee meetings:
- $1,000 for attending the first day of an in-person Board of Directors meeting ($1,500 in the case of the Chair);
- $2,000 for attending the second day of an in-person Board of Directors meeting ($3,000 in the case of the Chair);
- $1,000 for attending the third day of an in-person Board of Directors meeting ($1,500 in the case of the Chair), assuming the third day ends no later than early afternoon;
- $500 for in-person attendance at any committee meeting ($750 in the case of the Chair of each committee);
A Director who participates telephonically in any in-person Board or Committee meeting receives half of the fee that Director would have received for attending, in-person, the Board or Committee meeting. For telephonic Board and Committee meetings, the Chair and each Director and Committee Chair, as applicable, receive a fee equal to half the fee he or she would have received for attending an in-person meeting.
Directors also receive $3,500 per day when traveling, on behalf of a Fund, out of town on Fund business which does not involve a Board or committee meeting. In addition, directors are reimbursed for their out-of-pocket expenses in traveling from their primary or secondary residence to Board and committee meetings, on Fund business and to attend mutual fund industry conferences or seminars. The amounts specified above are allocated evenly among the funds in the First American Family of Funds on the basis of net assets.
The directors may elect to defer payment of up to 100% of the fees they receive in accordance with a Deferred Compensation Plan (the "Plan"). Under the Plan, a director may elect to have his or her deferred fees treated as if they had been invested in shares of one or more funds and the amount paid to the director under the Plan will be determined based on the performance of such investments. Distributions may be taken in a lump sum or over a period of years. The Plan will remain unfunded for federal income tax purposes under the Internal Revenue Code of 1986, as amended. Deferral of director fees in accordance with the Plan will have a negligible impact on Fund assets and liabilities and will not obligate the Funds to retain any director or pay any particular level of compensation. The Funds do not provide any other pension or retirement benefits to directors.
Legal fees and expenses are also paid to Dorsey & Whitney LLP, the law firm of which James D. Alt, Assistant Secretary of FAIF, FAF, FASF, and FACEF, is a partner.
The following table sets forth information concerning aggregate compensation paid to each director of FAIF (i) by FAIF (column 2), and (ii) by FAIF, FAF, FASF, Mount Vernon Trust, and FACEF collectively (column 5) during the fiscal year ended October 31, 2007. No executive officer or affiliated person of FAIF received any compensation from FAIF in excess of $60,000 during such fiscal year or fiscal period.
Compensation During Fiscal Year Ended October 31, 2007
AGGREGATE TOTAL COMPENSATION
COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL FROM REGISTRANT
FROM BENEFITS ACCRUED AS BENEFITS UPON AND FUND COMPLEX
NAME OF PERSON, POSITION REGISTRANT (1) PART OF FUND EXPENSES RETIREMENT PAID TO DIRECTORS (2)
------------------------ -------------- --------------------- ---------------- ---------------------
Benjamin R. Field III, Director $104,637 -0- -0- $158,348
Roger A. Gibson, Director 113,866 -0- -0- 172,156
Victoria J. Herget, Director 117,728 -0- -0- 177,949
John P. Kayser 102,053 -0- -0- 154,437
Leonard W. Kedrowski, Director 117,821 -0- -0- 177,500
Richard K. Riederer, Director 100,731 -0- -0- 152,437
Joseph D. Strauss, Director 116,026 -0- -0- 175,468
Virginia L. Stringer, Director & Chair 193,118 -0- -0- 292,247
James M. Wade, Director 104,802 -0- -0- 158,598
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(2) Included in the Total Compensation are amounts deferred for the following directors pursuant to the Deferred Compensation Plan: Roger A. Gibson, $35,150; Victoria J. Herget, $46,500; Leonard W. Kedrowski, $177,500; and Joseph D. Strauss, $25,500.
SALES LOADS
Directors of the Fund and certain other Fund affiliates may purchase the Fund's Class A shares at net asset value without a sales charge. See the prospectus for details.
CODE OF ETHICS
First American Investment Funds, Inc., FAF Advisors, Inc., and Quasar Distributors, LLC have each adopted a Code of Ethics pursuant to Rule 17j-1 of the 1940 Act. Each of these Codes of Ethics permits personnel to invest in securities for their own accounts, including securities that may be purchased or held by the Fund. These Codes of Ethics are on public file with, and are available from, the SEC.
PROXY VOTING POLICIES AND RECORDS
FAF Advisors, as investment manager for the First American family of mutual funds, has been delegated the authority by the board of directors of FAIF to vote proxies with respect to the investments held in the Fund. The policies and procedures that the Fund uses to determine how to vote proxies are set forth in Appendix B. Each year the First American family of funds files its proxy voting records with the SEC and makes them available by August 31 for the 12-month period ending June 30 of that year. The records can be obtained without charge through www.firstamericanfunds.com and/or the SEC's website at www.sec.gov.
INVESTMENT ADVISORY AND OTHER SERVICES FOR THE FUND
INVESTMENT ADVISOR
FAF Advisors, Inc. (the "Advisor"), 800 Nicollet Mall, Minneapolis, Minnesota 55402, serves as the investment advisor and manager of the Fund. The Advisor is a wholly owned subsidiary of U.S. Bank National Association ("U.S. Bank"), 800 Nicollet Mall, Minneapolis, Minnesota 55402, a national banking association that has professionally managed accounts for individuals, insurance companies, foundations, commingled accounts, trust funds, and others for over 75 years. U.S. Bank is a subsidiary of U.S. Bancorp, 800 Nicollet Mall, Minneapolis, Minnesota 55402, which is a regional multi-state bank holding company headquartered in Minneapolis, Minnesota that primarily serves the Midwestern, Rocky Mountain and Northwestern states. U.S. Bancorp also has various other subsidiaries engaged in financial services. At September 30, 2007, U.S. Bancorp and its consolidated subsidiaries had consolidated assets of more than $227 billion, consolidated deposits of more than $122 billion and shareholders' equity of $20.7 billion.
Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the "Advisory Agreement"), as amended, the Funds engaged U.S. Bank, through its First American Asset Management division ("FAAM"), to act as investment Advisor for, and to manage the investment of, the Funds' assets. The Advisory Agreement was assigned to the Advisor on May 2, 2001. Under the terms of the Advisory Agreement, the Fund has agreed to pay the Advisor monthly fees calculated on an annual basis equal to 0.90% of the Fund's average daily net assets.
The Advisory Agreement requires the Advisor to arrange, if requested by FAIF, for officers or employees of the Advisor to serve without compensation from the Fund as directors, officers, or employees of FAIF if duly elected to such positions by the shareholders or directors of FAIF. The Advisor has the authority and responsibility to make and execute investment decisions for the Fund within the framework of the Fund's investment policies, subject to review by the Board of Directors of FAIF. The Advisor is also responsible for monitoring the performance of the various organizations providing services to the Fund, including the Fund's distributor, shareholder services agent, custodian, accounting agent, and any sub-advisors, and for periodically reporting to FAIF's Board of Directors on the performance
of such organizations. The Advisor will, at its own expense, furnish the Fund with the necessary personnel, office facilities, and equipment to service the Fund's investments and to discharge its duties as investment advisor of the Fund.
In addition to the investment advisory fee, the Fund pays all of its expenses that are not expressly assumed by the Advisor or any other organization with which the Fund may enter into an agreement for the performance of services. Each Fund is liable for such nonrecurring expenses as may arise, including litigation to which the Fund may be a party. FAIF may have an obligation to indemnify its directors and officers with respect to such litigation. The Advisor will be liable to the Fund under the Advisory Agreement for any negligence or willful misconduct by the Advisor other than liability for investments made by the Advisor in accordance with the explicit direction of the Board of Directors or the investment objectives and policies of the Fund. The Advisor has agreed to indemnify the Fund with respect to any loss, liability, judgment, cost or penalty that the Fund may suffer due to a breach of the Advisory Agreement by the Advisor.
The Advisor may agree to a voluntary fee waiver for the Fund, which will be set forth in the Fund's Prospectus. Any such fee waiver (or reimbursement) may be discontinued at any time. The Advisor also may absorb or reimburse expenses of the Fund from time to time, in its discretion, while retaining the ability to be reimbursed by the Fund for such amounts prior to the end of the fiscal year. This practice would have the effect of lowering the Fund's overall expense ratio and of increasing yield to investors, or the converse, at the time such amounts are absorbed or reimbursed, as the case may be.
ADDITIONAL PAYMENTS TO FINANCIAL INTERMEDIARIES
In addition to the sales charge payments and the distribution, service and transfer agency fees described in the prospectus and elsewhere in this Statement of Additional Information, the Advisor and/or the Distributor may make additional payments out of its own assets to selected intermediaries that sell shares of First American Funds (such as brokers, dealers, banks, registered investment advisors, retirement plan administrators and other intermediaries; hereinafter, individually, "Intermediary," and collectively, "Intermediaries") under the categories described below for the purposes of promoting the sale of Fund shares, maintaining share balances and/or for sub-accounting, administrative or shareholder processing services.
The amounts of these payments could be significant and may create an incentive for an Intermediary or its representatives to recommend or offer shares of the Funds or other First American Funds to its customers. The Intermediary may elevate the prominence or profile of the Funds within the Intermediary's organization by, for example, placement on a list of preferred or recommended funds, and/or granting the Advisor and/or the Distributor preferential or enhanced opportunities to promote the Funds in various ways within the Intermediary's organization.
These payments are made pursuant to agreements with Intermediaries and do not change the price paid by investors for the purchase of a share or the amount a Fund will receive as proceeds from such sales. Furthermore, these payments are not reflected in the fees and expenses listed in the fee table section of the Funds' prospectuses and described above because they are not paid by the Funds.
The categories of payments described below are not mutually exclusive, and a single Intermediary may receive payments under all categories.
Marketing Support Payments and Program Servicing Payments
The Advisor and/or the Distributor may make payments for marketing support and/or program servicing to certain Intermediaries that are registered as holders or dealers of record for accounts in one or more of the First American Funds, or certain Intermediaries that sell First American Fund shares through retirement plans and other investment programs to compensate them for a variety of services they provide to such programs.
Marketing Support Payments. Services for which an Intermediary receives marketing support payments may include business planning assistance, advertising, educating the Intermediary's personnel about the First American Funds and shareholder financial planning needs, placement on the Intermediary's preferred or recommended fund company list, and access to sales meetings, sales representatives and management representatives of the Intermediary. In addition, Intermediaries may be compensated for enabling Fund representatives to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client
and investor events and other events sponsored by the Intermediary. The Advisor and/or the Distributor compensates Intermediaries differently depending upon, among other factors, sales and assets levels, redemption rates, ability to attract and retain assets, reputation in the industry and the level and/or type of marketing assistance and educational activities provided by the Intermediary.
Marketing support payments typically apply to retail sales and assets but may apply to other specific types of sales or assets, such as to retirement plans or fee-based advisory programs, in certain situations. The payments are negotiated and may be based on such factors as the number or value of shares that the Intermediary sells or may sell, the value of the assets invested in the Funds by the Intermediary's customers and/or other measures as determined from time to time by the Advisor and/or the Distributor. In addition, payments may include the reimbursement of ticket or operational charges (fees that an Intermediary charges its representatives for effecting transactions in Fund shares) and/or the payment of a lump sum for services provided.
Program Servicing Payments. Services for which an Intermediary receives program servicing payments typically include recordkeeping, reporting, or transaction processing, but may also include services rendered in connection with Fund/investment selection and monitoring, employee enrollment and education, plan balance rollover or separation, or other similar services. An Intermediary may perform program services itself or may arrange with a third party to perform program services.
Program servicing payments typically apply to employee benefit plans, such as retirement plans, or fee-based advisory programs but may apply to retail sales and assets in certain situations. The payments are negotiated and are based on such factors as the type and nature of services or support furnished by the Intermediary. In addition, payments may include the reimbursement of ticket or operational charges (fees that an Intermediary charges its representatives for effecting transactions in Fund shares) and/or the payment of a lump sum for services provided.
The Advisor and/or the Distributor may make one-time or periodic payments to selected Intermediaries receiving program servicing payments to reimburse printing and/or distribution costs for literature for participants, for account maintenance, for ticket charges of up to $25 per purchase or exchange order placed by an Intermediary, or for the establishment of First American Funds on the Intermediary 's trading system. In addition, the Advisor and/or the Distributor, at the direction of a retirement plan's sponsor, may reimburse or pay direct expenses of the plan that would otherwise be payable by the plan. These payments may cause the aggregate amount of the payments to an Intermediary on an annual basis to exceed the basis point amount set forth below.
Except as described in the foregoing paragraph, in the case of any one Intermediary (other than U.S. Bank, N.A.), marketing support and program servicing payments are not expected, with certain limited exceptions, to exceed, in the aggregate, 0.35% of the average net assets of Fund shares attributable to that Intermediary on an annual basis. Such exceptions include instances in which an Intermediary is not receiving distribution fees with respect to a Fund share class which has a distribution fee, in which case such Intermediary may receive up to 0.50% of the average net assets of that Fund share class attributable to that Intermediary on an annual basis. In addition, in connection with the sale of a business by the Advisor's parent company, U.S. Bank, N.A., to Great-West Life & Annuity Insurance Company, the Advisor has entered into a services agreement with GWFS Equities, Inc., an affiliate of Great-West Life & Annuity Insurance Company, which provides for program servicing payments of up to 0.60% of the average net assets of Fund shares attributable to GWFS Equities, Inc. on an annual basis.
Other Payments
From time to time, the Advisor and/or the Distributor, at its expense, may provide compensation to Intermediaries that sell or arrange for the sale of shares of the Fund(s), in addition to marketing support and program servicing payments described above. In addition, certain Intermediaries may not receive marketing support payments or program servicing payments, but may receive other payments from the Advisor and/or the Distributor.
The Advisor and/or the Distributor may compensate Intermediaries for National Securities Clearing Corporation networking system services (e.g., shareholder communication, account statements, trade confirmations, and tax reporting) on an asset based or per account basis. The Advisor and/or the Distributor may also compensate Intermediaries for providing Fund shareholder trading information.
When not provided for in a marketing support or program servicing agreement, the Advisor and/or the Distributor may pay Intermediaries for enabling the Advisor and/or the Distributor to participate in and/or present at
conferences or seminars, sales or training programs for invited registered representatives and other Intermediary employees, client and investor events and other Intermediary -sponsored events, and for travel expenses, including lodging incurred by registered representatives and other employees in connection with prospecting, asset retention and due diligence trips. These payments may vary depending upon the nature of the event. The Advisor and/or the Distributor makes payments for such events as it deems appropriate, subject to its internal guidelines and applicable law.
The Advisor and/or the Distributor occasionally sponsors due diligence meetings for registered representatives during which they receive updates on various First American Funds and are afforded the opportunity to speak with portfolio managers. Invitations to these meetings are not conditioned on selling a specific number of shares. Those who have shown an interest in First American Funds, however, are more likely to be considered. To the extent permitted by their firm's policies and procedures, registered representatives' expenses in attending these meetings may be covered by the Advisor and/or the Distributor.
Certain employees of the Advisor and its affiliates may receive cash compensation from the Advisor and/or the Distributor in connection with establishing new client relationships with the First American Funds. The total compensation of employees who have marketing and/or sales responsibilities is based in part on their generation of new client relationships, including new client relationships with the First American Funds. Other employees of the Advisor and its affiliates may receive a one-time referral fee from the Advisor and/or the Distributor for new business to the First American Funds based on a percentage of the annual revenue generated by the new client relationship. Such compensation will not exceed 10% of the annual revenue generated, up to a maximum of $10,000.
Other compensation may be offered to the extent not prohibited by state laws or any self-regulatory agency, such as the NASD. Investors can ask their Intermediary for information about any payments it receives from the Advisor and/or the Distributor and the services it provides for those payments.
Investors may wish to take such payment arrangements into account when considering and evaluating any recommendations relating to Fund shares.
Intermediaries Receiving Additional Payments
The following is a list of Intermediaries receiving one or more of the types of payments discussed above as of September 30, 2007:
401(k) Company (The)
A.G. Edwards & Sons, Inc.
Acclaim Benefits, Inc.
ADP Broker-Dealer, Inc.
American Stock Transfer & Trust Company
American United Life Insurance Company
Ameriprise Financial Services, Inc.
AST Capital Trust Company
Bisys Retirement Services, Inc.
Charles Schwab & Co., Inc.
Citigroup Global Markets Inc.
CitiStreet Advisors LLC / CitiStreet LLC
City National Bank
Commonwealth Equity Services, LLP, DBA Commonwealth Financial Network
CPI Qualified Plan Consultants, Inc.
D.A. Davidson & Co.
Dyatech, LLC
ExpertPlan, Inc.
Fidelity Brokerage Services LLC / National Financial Services LLC
Fidelity Investments Institutional Operations Company, Inc.
Fidelity Investments Institutional Services Company, Inc. / Fidelity Investments
Institutional Operations Company, Inc.
Fintegra, LLC
Fiserv Trust Company
Genesis Employee Benefits, DBA America's VEBA Solution
GWFS Equities, Inc.
Hewitt Associates LLC
International Clearing Trust Company
J.P. Morgan Retirement Plan Services, LLC
Leggette Actuaries, Inc.
Lincoln Retirement Services Company LLC / AMG Service Corp.
Linsco/Private Ledger Corp.
Marshall & Ilsley Trust Company, N.A.
Massachusetts Mutual Life Insurance Company
McDonald Investments, Inc.
Mercer HR Outsourcing LLC
Merrill Lynch, Pierce, Fenner & Smith Inc.
MetLife Securities, Inc.
Mid Atlantic Capital Corporation
Morgan Stanley DW Inc
MSCS Financial Services, LLC
National Investor Services Corp.
Newport Retirement Services, Inc.
NYLife Distributors LLC
Pershing LLC
Planners Network, Inc.
Principal Life Insurance Company
Prudential Insurance Company of America (The)
Prudential Investment Management Services, LLC / Prudential Investments LLC
Raymond James & Associates / Raymond James Financial Services, Inc.
RBC Dain Rauscher, Inc.
Reliance Trust Company
Retirement Plan Company, LLC (The)
Robert W. Baird & Co., Inc.
Stifel, Nicolaus & Co., Inc.
SunGard Institutional Brokerage Inc.
Symetra Life Insurance Company
T. Rowe Price Investment Services, Inc. / T. Rowe Price Retirement Plan
Services, Inc.
TD Ameritrade, Inc.
U.S. Bancorp Investments, Inc.
U.S. Bank, N.A.
UBS Financial Services, Inc.
Unified Trust Company, N.A.
Vanguard Group, Inc.
Wachovia Bank, N.A.
Wachovia Securities, LLC
Wells Fargo Bank, N.A.
Wilmington Trust Company
Any additions, modification or deletions to the list of Intermediaries identified above that have occurred since September 30, 2007 are not reflected.
ADMINISTRATOR
FAF Advisors, Inc. (the "Administrator") serves as Administrator pursuant to an Administration Agreement between the Administrator and the Funds, dated July 1, 2006. U.S. Bancorp Fund Services, LLC ("USBFS"), 615 East Michigan Street, Milwaukee, WI 53202, serves as sub-administrator pursuant to a Sub-Administration Agreement between the Administrator and USBFS dated July 1, 2005. USBFS is a subsidiary of U.S. Bancorp. Under the Administration Agreement, the Administrator provides, or compensates others to provide, services to the Fund. These services include various legal, oversight, administrative, and accounting services. The Fund pays the Administrator fees which are calculated daily and paid monthly equal to, on an annual basis, 0.25% of the aggregate average daily net
assets of all open-end mutual funds in the First American Family of Funds up to $8 billion, 0.235% on the next $17 billion of the aggregate average daily net assets, 0.22% on the next $25 billion of the aggregate average daily net assets, and 0.20% of the aggregate average daily net assets in excess of $50 billion. In addition to these fees, the Fund may reimburse the Administrator for any out-of-pocket expenses incurred in providing administration services.
TRANSFER AGENT
USBFS serves as the Fund's transfer agent pursuant to a Transfer Agency and Shareholder Servicing Agreement (the "Transfer Agent Agreement") between USBFS and the Funds dated July 1, 2006. The Fund is charged transfer agent fees on a per shareholder account basis, subject to a minimum fee per share class. These fees will be charged to the Fund based on the number of accounts within the Fund. The Fund may also reimburse the USBFS for out-of-pocket expenses incurred in providing transfer agent services.
DISTRIBUTOR
Quasar Distributors, LLC ("Quasar" or the "Distributor") serves as the distributor for the Fund's shares pursuant to a Distribution Agreement dated July 1, 2005 (the "Distribution Agreement") The Distributor is a wholly owned subsidiary of U.S. Bancorp.
Fund shares and other securities distributed by the Distributor are not deposits or obligations of, or endorsed or guaranteed by, U.S. Bank or its affiliates, and are not insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation.
Under the Distribution Agreement, the Fund has granted to the Distributor the exclusive right to sell shares of the Fund as agent and on behalf of the Fund. The Distributor pays compensation pursuant to the Distribution Agreement to securities firms, financial institutions (including, without limitation, banks) and other industry professionals (the "Participating Institutions") which enter into sales agreements with the Distributor. U.S. Bancorp Investment Services, Inc. ("USBI"), a broker-dealer affiliated with the Advisor, and U.S. Bank, are Participating Institutions.
The Class A Shares pay to the Distributor a shareholder servicing fee at an annual rate of 0.25% of the average daily net assets of the Class A Shares. The fee may be used by the Distributor to provide compensation for shareholder servicing activities with respect to the Class A Shares. The shareholder servicing fee is intended to compensate the Distributor for ongoing servicing and/or maintenance of shareholder accounts and may be used by the Distributor to provide compensation to institutions through which shareholders hold their shares for ongoing servicing and/or maintenance of shareholder accounts. This fee is calculated and paid each month based on average daily net assets of Class A Shares of the Fund for that month.
The Distributor receives no compensation for distribution of the Class Y Shares.
The Distribution Agreement provides that it will continue in effect for a period of more than one year from the date of its execution only so long as such continuance is specifically approved at least annually by the vote of a majority of the Board members of FAIF and by the vote of the majority of those Board members of FAIF who are not interested persons of FAIF and who have no direct or indirect financial interest in the operation of FAIF's Rule 12b-1 Distribution and Service Plan or in any agreement related to such plan.
FAIF has also adopted a Distribution and Service Plan with respect to the Class A Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act (the "Plan"). Rule 12b-1 provides in substance that a mutual fund may not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of shares, except pursuant to a plan adopted under the Rule. The Plan authorizes the Distributor to retain the sales charges paid upon purchase of Class A Shares and authorize the Fund to pay the Distributor distribution and/or shareholder servicing fees. The Plan is a "compensation-type" plan under which the Distributor is entitled to receive the distribution and shareholder servicing fees regardless of whether its actual distribution and shareholder servicing expenses are more or less than the amount of the fees. The distribution fees under the Plan are used for primary purpose of compensating broker-dealers for their sales of the Fund. The shareholder servicing fees are used primarily for the purpose of providing compensation for the ongoing servicing and/or maintenance of shareholder accounts. The Plan recognizes that the Distributor and the Advisor, in their discretion, may from time to time use their own assets to pay for certain additional costs of distributing
Class A Shares. Any such arrangements to pay such additional costs may be commenced or discontinued by the Distributor or the Advisor at any time.
CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Custodian. State Street Bank and Trust Company, 2 Avenue de Lafayette, LCC/5 Boston, MA 02111, acts as the custodian for the Fund. The custodian takes no part in determining the investment policies of the Fund or in deciding which securities are purchased or sold by the Fund. All of the instruments representing the investments of the Fund and all cash are held by their respective custodian or, for the Fund, by a sub-custodian. The custodian or sub-custodian delivers securities against payment upon sale and pays for securities against delivery upon purchase. The custodian also remits Fund assets in payment of Fund expenses, pursuant to instructions of FAIF's officers or resolutions of the Board of Directors.
State Street Bank and Trust Company, as custodian for the Fund, is paid reasonable compensation as agreed upon from time to time. Sub-custodian fees with respect to the Fund are paid by State Street Bank and Trust Company out of its fees from the Fund. In addition, the custodian is reimbursed for its out-of-pocket expenses incurred while providing services to the Fund. The custodian continues to serve so long as their appointment is approved at least annually by the Board of Directors including a majority of the directors who are not interested persons (as defined under the 1940 Act) of FAIF.
Independent Registered Public Accounting Firm. Ernst & Young LLP, 220 South Sixth Street, Suite 1400, Minneapolis, Minnesota 55402, serves as the Fund's independent registered public accounting firm, providing audit services, including audits of the annual financial statements.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED
The following table sets forth the number and total assets of the mutual funds and accounts managed by the Fund's portfolio managers as of October 31, 2007.
AMOUNT SUBJECT TO
PORTFOLIO MANAGER TYPE OF ACCOUNT MANAGED NUMBER OF ACCOUNTS ASSETS PERFORMANCE-BASED FEE
----------------- -------------------------------- ------------------ -------------- ---------------------
John G. Wenker Registered Investment Company 10 $2.3 billion 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 0 0 0
Jay Rosenberg Registered Investment Company 1 $903.5 million 0
Other Pooled Investment Vehicles 0 0 0
Other Accounts 4 $40.0 million 0
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FAF ADVISORS SIMILAR ACCOUNTS. The Fund's portfolio managers often manage multiple accounts. The Advisor has adopted policies and procedures regarding brokerage and trade allocation and allocation of investment opportunities that it believes are reasonably designed to address potential conflicts of interest associated with managing multiple accounts for multiple clients.
PORTFOLIO MANAGER COMPENSATION
FAF ADVISORS COMPENSATION. Portfolio manager compensation consists primarily of base pay, an annual cash incentive and long term incentive payments.
Base pay is determined based upon an analysis of the portfolio manager's general performance, experience, and market levels of base pay for such position.
The Fund's portfolio managers are paid an annual cash incentive based upon investment performance, generally over the past one- and three-year periods unless the portfolio manager's tenure is shorter. The maximum potential annual cash incentive is equal to a multiple of base pay, determined based upon the particular portfolio manager's performance and experience, and market levels of base pay for such position.
For managers of the Fund, the portion of the maximum potential annual cash
incentive that is paid out is based upon performance relative to the portfolio's
benchmark and performance relative to an appropriate Lipper industry peer group.
Generally, the threshold for payment of an annual cash incentive is (i)
benchmark performance and (ii) median performance versus the peer group, and the
maximum annual cash incentive is attained at (i) a spread over the benchmark
which the Advisor believes will, over time, deliver top quartile performance and
(ii) top quartile performance versus the Lipper industry peer group.
Investment performance is measured on a pre-tax basis, gross of fees for Fund results and for the Lipper industry peer group.
Long term incentive payments are paid to portfolio managers on an annual
basis based upon general performance and expected contributions to the success
of the Advisor. Long-term incentive payments are comprised of two components:
(i) performance equity units of the Advisor and (ii) U.S. Bancorp options and
restricted stock.
There are generally no differences between the methods used to determine compensation with respect to the Fund and the Other Accounts shown in the table above.
OWNERSHIP OF FUND SHARES
The Fund did not commence the public offering of shares until the date of this SAI. No shares were beneficially owned by the portfolio managers as of that date.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to which securities are to be bought or sold, the total amount of securities to be bought or sold, the broker-dealer with or through which the securities transactions are to be effected and the commission rates applicable to the trades are made by the Advisor.
In selecting a broker-dealer to execute securities transactions, the Advisor considers a variety of factors, including the execution capability, financial responsibility and responsiveness of the broker-dealer in seeking best price and execution. Subject to the satisfaction of its obligation to seek best execution, other factors the Advisor may consider include a broker-dealer's access to initial public offerings and the nature and quality of any brokerage and research products and services the broker-dealer provides. However, the Advisor may cause the Fund to pay a broker-dealer a commission in excess of that which another broker-dealer might have charged for effecting the same transaction (a practice commonly referred to as "paying up"). The Advisor may cause the Fund to pay up in recognition of the value of brokerage and research products and services provided to the Advisor by the broker-dealer. The broker-dealer may directly provide such products or services to the Advisor or purchase them form a third party and provide them to the Advisor. In such cases, the Fund is in effect paying for the brokerage and research products and services in so-called "soft-dollars." However, the Advisor will authorize the Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged only if the Advisor determined in good faith that the amount of such commission was reasonable in relation to the value of the brokerage and research products and services provided by such broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Advisor with respect to the managing of its accounts.
The types of research products and services the Advisor receives include economic analysis and forecasts, financial market analysis and forecasts, industry and company specific analysis, interest rate forecasts, and other services that assist in the investment decision making process. Research products and services are received primarily in the form of written reports, computer-generated services, telephone contacts and personal meetings with security analysts. Research services may also be provided in the form of meetings arranged with corporate and industry spokespersons or may be generated by third parties but are provided to the Advisor by, or through, broker-dealers.
The research products and services the Advisor receives from broker-dealers are supplemental to, and do not necessarily reduce, the Advisor's own normal research activities. As a practical matter, however, it would be impossible for the Advisor to generate all of the information presently provided by broker-dealers. The expenses of the Advisor would be materially increased if they attempted to generate such additional information through its own staff. To the extent that the Advisor could use cash to purchase many of the brokerage and research products and services received for allocating securities transactions to broker-dealers, the Advisor is relieved of expenses that it might otherwise bear when such services are provided by broker-dealers.
As a general matter, the brokerage and research products and services the Advisor receives from broker-dealers are used to service all of their respective accounts. However, any particular brokerage and research product or service may not be used to service each and every client account, and may not benefit the particular accounts that generated the brokerage commissions. For example, equity commissions may pay for brokerage and research products and services utilized in managing fixed income accounts.
In some cases, the Advisor may receive brokerage or research products or services that are used for both brokerage or research purposes and other purposes, such as accounting, record keeping, administration or marketing. In such cases, the Advisor will make a good faith effort to decide the relative proportion of the cost of such products or services used for non-brokerage or research purposes and will pay for such portion from its own funds. In such circumstance, the Advisor has a conflict of interest in making such decisions.
Many of the Fund's portfolio transactions involve payment of a brokerage commission by the Fund. In some cases, transactions are with dealers or issuers who act as principal for their own accounts and not as brokers. Transactions effected on a principal basis, other than certain transactions effected on a so-called riskless principal basis, are made without the payment of brokerage commissions but at net prices which usually include a spread or markup. In effecting transactions in over-the-counter securities, the Fund typically deals with market makers unless it appears that better price and execution are available elsewhere.
It is expected that the Fund will purchase most foreign equity securities in the over-the-counter markets or stock exchanges located in the countries in which the respective principal offices of the issuers of the various securities are located if that is the best available market. The fixed commission paid in connection with most such foreign stock transactions generally is higher than negotiated commissions on United States transactions. There generally is less governmental supervision and regulation of foreign stock exchanges than in the United States. Foreign securities settlements may in some instances be subject to delays and related administrative uncertainties.
Foreign equity securities may be held in the form of American Depositary Receipts, or ADRs, European Depositary Receipts, or EDRs, or securities convertible into foreign equity securities. ADRs and EDRs may be listed on stock exchanges or traded in the over-the-counter markets in the United States or overseas. The foreign and domestic debt securities and money market instruments in which the Fund may invest are generally traded in the over-the-counter markets.
The Fund does not effect any brokerage transactions in its portfolio securities with any broker or dealer affiliated directly or indirectly with the Advisor or Distributor unless such transactions, including the frequency thereof, the receipt of commission payable in connection therewith, and the selection of the affiliated broker or dealer effecting such transactions are not unfair or unreasonable to the shareholders of the Fund, as determined by the Board of Directors. Any transactions with an affiliated broker or dealer must be on terms that are both at least as favorable to the Fund as the Fund can obtain elsewhere and at least as favorable as such affiliated broker or dealer normally gives to others.
When two or more clients of the Advisor are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in a manner considered by the Advisor to be equitable to each client. In some cases, this system could have a detrimental effect on the price or volume of the security as far as each client is concerned. In other cases, however, the ability of the clients to participate in volume transactions may produce better executions for each client.
CAPITAL STOCK
Each share of the Fund's $.01 par value common stock is fully paid, nonassessable, and transferable. Shares may be issued as either full or fractional shares. Fractional shares have pro rata the same rights and privileges as full shares. Shares of the Fund have no preemptive or conversion rights.
Each share of the Fund has one vote. On some issues, such as the election of directors, all shares of all FAIF Funds vote together as one series. The shares do not have cumulative voting rights. On issues affecting only a particular Fund, the shares of that Fund will vote as a separate series. Examples of such issues would be proposals to alter a fundamental investment restriction pertaining to the Fund or to approve, disapprove or alter a distribution plan. The Bylaws of FAIF provide that annual shareholders meetings are not required and that meetings of shareholders need only be held with such frequency as required under Minnesota law and the 1940 Act.
As of the date of this Statement of Additional Information, there were 20 shares of the Fund outstanding, all of which were held by FAF Advisors, Inc. It is expected that U.S. Bank, the parent of the Advisor, will acquire shares of the Fund upon the effective date of the Fund and will own substantially all, or a significant portion, of the Fund's outstanding shares for an indeterminable period thereafter.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The public offering price of the shares of the Fund generally equals the Fund's net asset value plus any applicable sales charge. A summary of any applicable sales charge assessed on Fund share purchases is set forth in the Fund's Prospectus.
The net asset value of the Fund's shares is determined on each day during which the New York Stock Exchange (the "NYSE") is open for business. The NYSE is not open for business on the following holidays (or on the nearest Monday or Friday if the holiday falls on a weekend): New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday (observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each year the NYSE may designate different dates for the observance of these holidays as well as designate other holidays for closing in the future. To the extent that the securities held by the Fund are traded on days that the Fund is not open for business, the Fund's net asset value per share may be affected on days when investors may not purchase or redeem shares. This may occur with the Fund as it holds securities which are traded in foreign markets.
TAXATION
The Fund intends to fulfill the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), to qualify as a regulated investment company. If so qualified, the Fund will not be liable for federal income taxes to the extent it distributes its taxable income to its shareholders.
Some of the investment practices that may be employed by the Fund will be subject to special provisions that, among other things, may defer the use of certain losses of the Fund, affect the holding period of the securities held by the Fund and, particularly in the case of transactions in or with respect to foreign currencies, affect the character of the gains or losses realized. These provisions may also require the Fund to mark-to-market some of the positions in their respective portfolios (i.e., treat them as closed out) or to accrue original discount, both of which may cause the Fund to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for qualification as a regulated investment company and for avoiding income and excise taxes. Accordingly, in order to make the required distributions, the Fund may be required to borrow or liquidate securities. The Fund will monitor its transactions and may make certain elections in order to mitigate the effect of these rules and prevent disqualification of the Fund as regulated investment companies.
When the Fund lends portfolio securities to a borrower as described above in "Lending of Portfolio Securities," payments in lieu of dividends made by the borrower to the Fund will not constitute "qualified dividends" taxable at the same rate as long-term capital gains, even if the actual dividends would have constituted qualified dividends had the Fund held the securities. Such payments in lieu of dividends are taxable as ordinary income.
It is expected that any net gain realized from the closing out of futures contracts, options, or forward currency contracts will be considered gain from the sale of securities or currencies and therefore qualifying income for purposes of the requirement that a regulated investment company derive at least 90% of gross income from investment securities.
Any loss on the sale or exchange of shares of the Fund generally will be disallowed to the extent that a shareholder acquires or contracts to acquire shares of the Fund within 30 days before or after such sale or exchange. Furthermore, if Fund shares with respect to which a long-term capital gain distribution has been made are held for less than six months, any loss on the sale of exchange of such shares will be treated as a long-term capital loss to the extent of such long-term capital gain distribution.
For federal tax purposes, if a shareholder exchanges shares of the Fund for shares of any other FAIF Fund pursuant to the exchange privilege (see "Policies and Services -- Purchasing, Redeeming, and Exchanging Shares" in the Prospectus), such exchange will be considered a taxable sale of the shares being exchanged. Furthermore, if a shareholder of Class A shares carries out the exchange within 90 days of purchasing shares in a fund on which he or she has incurred a sales charge, the sales charge cannot be taken into account in determining the shareholder's gain or loss on the sale of those shares to the extent that the sales charge that would have been applicable to the purchase of the later-acquired shares in the other Fund is reduced because of the exchange privilege. However, the amount of any sales charge that may not be taken into account in determining the shareholder's gain or loss on the sale of the first-acquired shares may be taken into account in determining gain or loss on the eventual sale or exchange of the later-acquired shares.
Pursuant to the Code, distributions of net investment income by the Fund to a shareholder who is a foreign shareholder (as defined below) will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will not apply if a dividend paid by the Fund to a foreign shareholder is "effectively connected" with a U.S. trade or business of such shareholder, in which case the reporting and withholding requirements applicable to U.S. citizens or domestic corporations will apply. Distributions of net long-term capital gains are not subject to tax withholding but, in the case of a foreign shareholder who is a nonresident alien individual, such distributions ordinarily will be subject to U.S. income tax at a rate of 30% if the individual is physically present in the U.S. for more than 182 days during the taxable year. The Fund will report annually to its shareholders the amount of any withholding.
A foreign shareholder is any person who is not (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in the United States or under the laws of the United States or a political subdivision thereof, (iii) an estate whose income is includible in gross income for U.S. federal income tax purposes or (iv) a trust whose administration is subject to the primary supervision of the U.S. court and which has one or more U.S. fiduciaries who have authority to control all substantial decisions of the trust.
The foregoing relates only to federal income taxation and is a general summary of the federal tax law in effect as of the date of this Statement of Additional Information.
REDUCING SALES CHARGES
CLASS A SALES CHARGE
Sales charges on the purchase of Class A shares can be reduced through (i) quantity discounts and accumulated purchases, or (ii) signing a 13-month letter of intent.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES: The Fund will combine purchases made by an investor, the investor's spouse or domestic partner, and the investor's dependent children when it calculates the sales charge.
The sales charge discount will be determined by adding (i) the purchase
price (including sales charge) of the Fund shares that are being purchased, plus
(ii) the purchase price of the Class A shares of any other First American Fund,
and Class B and Class C shares of First American Funds offering such share
classes, (other than a money market fund). In order for an investor to receive
the sales charge reduction on Class A Shares, the Fund must be notified by the
investor in writing or by his or her financial institution at the time the
purchase is made that Fund shares are already owned or that purchases are being
combined. If the purchase price of shares that the investor owns is higher than
their
current net asset value, the investor may receive credit for this higher purchase price instead, but only if the investor notifies the Fund of this request in advance in writing and provides written records of the original purchase price.
LETTER OF INTENT: If an investor intends to purchase, in the aggregate, at least $50,000 of Class A shares in the Fund or other First American Funds, or Class B or Class C shares in other First American funds (other than money market funds), over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter of intent includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the Fund's custodian to hold a percentage equal to the Fund's maximum sales charge rate of the total amount intended to be purchased in escrow (in shares) until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the investor's account at the end of the 13-month period after deduction of the sales load applicable to the dollar value of shares actually purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares, but if he or she does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. Absent complete and current notification from the investor or from his or financial institution to the Fund, the investor may not realize the benefit of a reduced sales charge.
SALES OF CLASS A SHARES AT NET ASSET VALUE
General. The prospectus for the Fund sets forth the categories of investors eligible to purchase Class A shares without a sales charge.
Purchases of $1 Million or More. Class A shares may be purchased without a sales charge by non-retirement accounts if the purchase, when aggregated with certain Class A, B and C share purchases as described in the Fund's prospectus, totals $1 million or more. Your investment professional or financial institution may receive a commission equal to 1.00% on purchases of $1 million to $3 million, 0.50% on purchases in excess of $3 million up to $10 million, and 0.25% on purchases in excess of $10 million. Note that your investment professional or financial institution will only receive a commission equal to the rate required by the actual investment (without taking into account aggregation). For example, if your aggregated investments, including your current investment, total $6 million, but your current investment equals $2 million, your investment professional or financial institution may receive a commission equal to 1.00% of $2 million. If such a commission is paid, you will be assessed a contingent deferred sales charge (CDSC) of 1% if you sell your shares within 18 months.
Class A Shares may also be purchased without a sales charge by 401(k), 403(b) and 457 plans, and profit sharing and pension plans, which invest $1 million or more. Your representative must notify the Fund if your retirement/deferred compensation plan is eligible for the sales load waiver. Securities firms, financial institutions and other industry professionals that enter into sales agreements with the Fund's distributor to perform share distribution services may receive a commission on such sales of the Fund equal to 0.25% on purchases in excess of $10 million. If such a commission is paid, the plan will be assessed a contingent deferred sales charge (CDSC) of 0.25% if it sells the shares within 18 months. A commission is paid only on Class A shares of the Fund.
REINVESTMENT RIGHT
If Class A Shares of the Fund have been redeemed, the shareholder has a one-time right, within 180 days, to reinvest the redemption proceeds in Class A Shares of any First American fund at the next-determined net asset value without any sales charge. The Fund must be notified by the shareholder in writing or by his or her financial institution of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his or her shares of the Fund, there may be tax consequences.
RECEIPT OF ORDERS BY FINANCIAL INTERMEDIARIES
The Fund has authorized one or more Intermediaries to receive purchase and redemption orders on the Fund's behalf. Intermediaries are authorized to designate other intermediaries to receive purchase and redemption orders on the
Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized Intermediary or, if applicable, an Intermediary's authorized designee, receives the order. An order will be priced at the applicable Fund's net asset value next computed after the order is received by an authorized Intermediary or the Intermediary's authorized designee and accepted by the Fund.
ADDITIONAL INFORMATION ABOUT REDEEMING SHARES
BY TELEPHONE
A shareholder may redeem shares of the Fund, if he or she elects the privilege on the initial shareholder application, by calling his or her financial institution to request the redemption. Shares will be redeemed at the net asset value next determined after the Fund receives the redemption request from the financial institution (less the amount of any applicable contingent deferred sales charge). Redemption requests must be received by the financial institution by the time specified by the institution in order for shares to be redeemed at that day's net asset value, and redemption requests must be transmitted to and received by the Fund as of the close of regular trading on the New York Stock Exchange (usually by 3:00 p.m. Central time) in order for shares to be redeemed at that day's net asset value unless the financial institution has been authorized to accept redemption requests on behalf of the Fund. Pursuant to instructions received from the financial institution, redemptions will be made by check or by wire transfer. It is the financial institution's responsibility to transmit redemption requests promptly. Certain financial institutions are authorized to act as the Fund's agent for the purpose of accepting redemption requests, and the Fund will be deemed to have received a redemption request upon receipt of the request by the financial institution.
Shareholders who did not purchase their shares of the Fund through a financial institution may redeem their shares by telephoning Investor Services at 800 677-FUND. At the shareholder's request, redemption proceeds will be paid by check mailed to the shareholder's address of record or wire transferred to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System, normally within one business day, but in no event more than seven days after the request. Wire instructions must be previously established on the account or provided in writing. The minimum amount for a wire transfer is $1,000. If at any time the Fund determines it necessary to terminate or modify this method of redemption, shareholders will be promptly notified. The Fund may limit telephone redemption requests to an aggregate of $50,000 per day across the First American Fund family.
In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming shares by telephone. If this should occur, another method of redemption should be considered. Neither the Administrator nor the Fund will be responsible for any loss, liability, cost or expense for acting upon wire transfer instructions or telephone instructions that they reasonably believe to be genuine. The Administrator and the Fund will each employ reasonable procedures to confirm that instructions communicated are genuine. These procedures may include taping of telephone conversations. To ensure authenticity of redemption or exchange instructions received by telephone, the Administrator examines each shareholder request by verifying the account number and/or tax identification number at the time such request is made. The Administrator subsequently sends confirmation of both exchange sales and exchange purchases to the shareholder for verification. If reasonable procedures are not employed, the Administrator and the Fund may be liable for any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the Administrator, shareholder servicing agent, financial institution or USBFS. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested to be redeemed, and should be signed exactly as the shares are registered. Shareholders should call the Fund, shareholder servicing agent or financial institution for assistance in redeeming by mail. Unless another form of payment is requested, a check for redemption proceeds normally is mailed within three days, but in no event more than seven days, after receipt of a proper written redemption request.
Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record, must have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank the deposits of which are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific Stock Exchanges or of the National Association of Securities Dealers;
- a savings bank or savings and loan association the deposits of which are insured by the Savings Association;
- any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Fund, the Administrator and USBFS have adopted standards for accepting signature from the above institutions. The Fund may elect in the future to limit eligible signature guarantees to institutions that are members of a signature guarantee program. The Fund, the Administrator and USBFS reserve the right to amend these standards at any time without notice.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the Automated Clearing House, the proceeds of redemptions of those shares are not available until the Administrator or USBFS is reasonably certain that the purchase payment has cleared, which could take up to fifteen calendar days from the purchase date.
APPENDIX A
RATINGS
A rating of a rating service represents that service's opinion as to the credit quality of the rated security. However, such ratings are general and cannot be considered absolute standards of quality or guarantees as to the creditworthiness of an issuer. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. Market values of debt securities may change as a result of a variety of factors unrelated to credit quality, including changes in market interest rates.
When a security has been rated by more than one service, the ratings may not coincide, and each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. In general, the Funds are not required to dispose of a security if its rating declines after it is purchased, although they may consider doing so.
RATINGS OF LONG-TERM CORPORATE DEBT OBLIGATIONS
STANDARD & POOR'S
AAA: An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
D: An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
MOODY'S
AAA: Bonds and preferred stock that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds and preferred stock that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities, or fluctuation of protective elements may be of greater amplitude, or there may be other elements present which make the long-term risks appear somewhat greater than in Aaa securities.
A: Bonds and preferred stock that are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.
BAA: Bonds and preferred stock that are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such securities lack outstanding investment characteristics, and in fact have speculative characteristics as well.
BA: Bonds and preferred stock that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes issues in this class.
B: Bonds and preferred stock that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA: Bonds and preferred stock that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA: Bonds and preferred stock that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds and preferred stock that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
FITCH
AAA: Securities considered to be investment grade and of the highest credit quality. These ratings denote the lowest expectation of credit risk and are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Securities considered to be investment grade and of very high credit quality. These ratings denote a very low expectation of credit risk and indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: Securities considered to be investment grade and of high credit quality. These ratings denote a low expectation of credit risk and indicate strong capacity for timely payment of financial commitments. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB: Securities considered to be investment grade and of good credit quality. These ratings denote that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investments grade category.
BB: Securities considered to be speculative. These ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B: Securities are considered highly speculative. These ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC, CC AND C: Securities have high default risk. Default is a real possibility, and capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC ratings indicate that default of some kind appears probable, and C ratings signal imminent default.
DDD, DD AND D: Securities are in default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. DDD obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. DD indicates potential recoveries in the range of 50%-90%, and D the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations, while entities rated D have a poor prospect for repaying all obligations.
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show the relative standing within the major rating categories.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S
Commercial paper ratings are graded into four categories, ranging from A for the highest quality obligations to D for the lowest. None of the Funds will purchase commercial paper rated A-3 or lower.
A-1: A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
MOODY'S
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. None of the Funds will purchase Prime-3 commercial paper.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: o Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
- Well-established access to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt-protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
FITCH
Fitch employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. None of the Funds will purchase F3 commercial paper.
F1: Securities possess the highest credit quality. This designation indicates the strongest capacity for timely payment of financial commitments and may have an added "+" to denote any exceptionally strong credit feature.
F2: Securities possess good credit quality. This designation indicates a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.
F3: Securities possess fair credit quality. This designation indicates that the capacity for timely payments of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.
APPENDIX B
FAF ADVISORS, INC.
PROXY VOTING POLICIES AND PROCEDURES
GENERAL PRINCIPLES
FAF Advisors, Inc. ("FAF Advisors") is the investment adviser for the First American family of mutual funds (the "Funds") and for institutional and other separately managed accounts (collectively, with the Funds, "Client Accounts"). As such, Client Accounts may confer upon FAF Advisors complete discretion to vote proxies. It is FAF Advisors' duty to vote proxies in the best interests of its clients. In voting proxies, FAF Advisors also seeks to maximize total investment return for its clients.
In the event that FAF Advisors contracts with another investment adviser to act as a sub-adviser for a Client Account, FAF Advisors may delegate proxy voting responsibility to the sub-adviser. Where FAF has delegated proxy voting responsibility, the sub-adviser will be responsible for developing and adhering to its own proxy voting policies. FAF Advisors will approve a sub-adviser's proxy voting policies, and will review these policies at least annually.
FAF Advisors' Investment Policy Committee ("IPC"), comprised of the firm's most senior investment professionals, is charged with oversight of the proxy voting policies and procedures. The IPC is responsible for (1) approving the proxy voting policies and procedures, and (2) oversight of the activities of FAF Advisors' Proxy Voting Administration Committee ("PVAC"). The PVAC is responsible for providing an administrative framework to facilitate and monitor FAF Advisors' exercise of its fiduciary duty to vote client proxies and fulfill the obligations of reporting and recordkeeping under the federal securities laws.
POLICIES
The IPC, after reviewing and concluding that such policies are reasonably designed to vote proxies in the best interests of clients, has approved and adopted the proxy voting policies of Institutional Shareholder Services, Inc. ("ISS"), a leading national provider of proxy voting administrative and research services. As a result, such policies set forth FAF Advisors' positions on recurring proxy issues and criteria for addressing non-recurring issues. These policies are reviewed periodically by ISS, and therefore are subject to change. Even though it has adopted ISS' policies, FAF Advisors maintains the fiduciary responsibility for all proxy voting decisions.
PROCEDURES
A. Supervision of Proxy Voting Service
The PVAC shall supervise the relationship with FAF Advisors' proxy voting service, ISS. ISS apprises FAF Advisors of shareholder meeting dates, provides research on proxy proposals and voting recommendations, and casts the actual proxy votes. ISS also serves as FAF Advisors' proxy voting record keeper and generates reports on how proxies were voted.
B. Conflicts of Interest
As an affiliate of U.S. Bancorp, a large multi-service financial institution, FAF Advisors recognizes that there are circumstances wherein it may have a perceived or real conflict of interest in voting the proxies of issuers or proxy proponents (e.g., a special interest group) who are clients or potential clients of some part of the U.S. Bancorp enterprise. Directors and officers of such companies may have personal or familial relationships with the U.S. Bancorp enterprise and/or its employees that could give rise to potential conflicts of interest.
FAF Advisors will vote proxies in the best interest of its clients regardless of such real or perceived conflicts of interest. By adopting ISS' policies, FAF Advisors believes the risk related to conflicts will be minimized.
To further minimize this risk, the IPC will review ISS' conflict avoidance policy at least annually to ensure that it adequately addresses both the actual and perceived conflicts of interest the proxy voting service may face.
In the event that ISS faces a material conflict of interest with respect to a specific vote, the PVAC shall direct ISS how to vote. The PVAC shall receive voting direction from the Head of Equity Research, who will seek voting direction from appropriate investment personnel. Before doing so, however, the PVAC will confirm that FAF Advisors faces no material conflicts of its own with respect to the specific proxy vote.
If the PVAC concludes that a material conflict does exist, it will recommend to the IPC a course of action designed to address the conflict. Such actions could include, but are not limited to:
1. Obtaining instructions from the affected client(s) on how to vote the proxy;
2. Disclosing the conflict to the affected client(s) and seeking their consent to permit FAF Advisors to vote the proxy;
3. Voting in proportion to the other shareholders;
4. Recusing an IPC member from all discussion or consideration of the matter, if the material conflict is due to such person's actual or potential conflict of interest; or
5. Following the recommendation of a different independent third party.
In addition to all of the above, members of the IPC and the PVAC must notify FAF Advisors' Chief Compliance Officer of any direct, indirect or perceived improper influence exerted by any employee, officer or director within the U.S. Bancorp enterprise or First American Fund complex with regard to how FAF Advisors should vote proxies. The Chief Compliance Officer will investigate the allegations and will report the findings to FAF Advisors' Chief Executive Officer and the General Counsel. If it is determined that improper influence was attempted, appropriate action shall be taken. Such appropriate action may include disciplinary action, notification of the appropriate senior managers within the U.S. Bancorp enterprise, or notification of the appropriate regulatory authorities. In all cases, the IPC shall not consider any improper influence in determining how to vote proxies, and will vote in the best interests of clients.
C. Proxy Vote Override
From time to time, a Portfolio Manager may initiate action to override the ISS recommendation for a particular vote. Any such override shall be reviewed by FAF Advisors' Legal Department for material conflicts. If the Legal Department determines that no material conflicts exist, the approval of one investment professional on the IPC or the Head of Equity Research shall authorize the override. If a material conflict exists then the override will not be effectuated.
D. Securities Lending
In order to generate incremental revenue, some clients may participate in U.S. Bank's securities lending program. If a client has elected to participate in the lending program then it will not have the right to vote the proxies of any securities that are on loan as of the shareholder meeting record date. A client, or a Portfolio Manager, may place restrictions on loaning securities and/or recall a security on loan at any time. Such actions must be affected prior to the record date for a meeting if the purpose for the restriction or recall is to secure the vote.
Portfolio Managers and/or Analysts who become aware of upcoming proxy issues relating to any securities in portfolios they manage, or issuers they follow, will consider the desirability of recalling the affected securities that are on loan or restricting the affected securities prior to the record date for the matter. If the proxy issue is determined to be material, and the determination is made prior to the shareholder meeting record date the Portfolio Manager(s) will contact the Securities Lending Department to recall securities on loan or restrict the loaning of any security held in any portfolio they manage, if they determine that it is in the best interest of shareholders to do so. Training regarding the process to recall securities on loan or restrict the loaning of securities is given to all Portfolio Managers and Analysts.
E. Proxy Voting for ERISA Clients
In the event that a proxy voting issue arises for an ERISA client, FAF Advisors is prohibited from voting shares with respect to any issue advanced by a party in interest, such as U.S. Bancorp or any of the First American Funds.
F. Proxy Voting Records
As required by Rule 204-2 of the Investment Company Act of 1940, FAF Advisors shall make and retain five types of records relating to proxy voting; (1) proxy voting policies and procedures; (2) proxy statements received for client and fund securities; (3) records of votes cast on behalf of clients and funds; (4) records of written requests for proxy voting information and written responses from the advisor to either a written or oral request; and (5) any documents prepared by the advisor that were material to making a proxy voting decision or that memorialized the basis for the decision. FAF Advisors may rely on ISS to make and retain on our behalf records pertaining to the rule.
Each sub-advisor shall be responsible for making and retaining all proxy voting records required by the rule and shall provide them to FAF Advisors upon request.
G. Fund of Funds Provision
In instances where FAF Advisors provides investment advice to a fund of funds that acquires shares of affiliated funds or three percent or more of the outstanding voting securities of an unaffiliated fund, the acquiring fund shall seek instructions from its shareholders as to how to vote shares of those acquired funds, or to vote the shares in the same proportion as the vote of all other shareholders of the acquired fund. If compliance with this policy results in a vote of any shares in a manner different than the ISS recommendation, such vote will not require compliance with the Proxy Vote Override procedures set forth above.
H. Review and Reports
The PVAC shall maintain a review schedule. The schedule shall include reviews for the proxy voting policy, the proxy voting record, account maintenance, and other reviews as deemed appropriate by the PVAC. The PVAC shall review the schedule at least annually.
The PVAC will report to the IPC with respect to all identified conflicts and how they were addressed. These reports will include all Client Accounts, including those that are sub-advised. With respect to the review of votes cast on behalf of investments by the Funds, such review will also be reported to the Board of Directors of the Funds at each of their regularly scheduled meetings.
I. Vote Disclosure to Shareholders
FAF Advisors shall disclose its proxy voting record on the Funds' website at www.firstamericanfunds.com and/or on the SEC's website at www.sec.gov. Additionally, shareholders can receive, on request, the voting records for the Funds by calling a toll free number (1-800-677-3863).
FAF Advisors' institutional and separately managed account clients can contact their relationship manager for more information on FAF Advisors' policies and the proxy voting record for their account. The information available includes name of issuer, ticker/CUSIP, shareholder meeting date, description of item and FAF Advisors' vote.
J. Form N-PX
FAF Advisors will cause Form N-PX to be filed with the Securities and Exchange Commission, and ensure that any other proxy vote related filings as required by regulation or contract are timely made.
ISS PROXY VOTING GUIDELINES SUMMARY
The following is a concise summary of ISS's proxy voting policy guidelines.
1. AUDITORS
AUDITOR RATIFICATION
Vote FOR proposals to ratify auditors, unless any of the following apply:
- An auditor has a financial interest in or association with the company, and is therefore not independent,
- There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position; or
- Fees for non-audit services ("Other" fees) are excessive.
2. BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Vote CASE-BY-CASE on director nominees, examining, but not limited to, the following factors:
- Composition of the board and key board committees;
- Attendance at board and committee meetings;
- Corporate governance provisions and takeover activity;
- Disclosures under Section 404 of Sarbanes-Oxley Act;
- Long-term company performance relative to a market and peer index;
- Extent of the director's investment in the company;
- Existence of related party transactions;
- Whether the chairman is also serving as CEO;
- Whether a retired CEO sits on the board;
- Number of outside boards at which a director serves;
- Majority vote standard for director elections without a provision to allow for plurality voting when there are more nominees than seats.
WITHHOLD from individual directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse (such as illness, service to the nation, work on behalf of the company);
- Sit on more than six public company boards;
- Are CEOs of public companies who sit on the boards of more than two public companies besides their own-- withhold only at their outside boards.
WITHHOLD from the entire board of directors, (except from new nominees, who should be considered on a CASE-BY-CASE basis) if:
- The company's proxy indicates that not all directors attended 75% of the aggregate of their board and committee meetings, but fails to provide the required disclosure of the names of the directors involved. If this information cannot be obtained, withhold from all incumbent directors;
- The company's poison pill has a dead-hand or modified dead-hand feature. Withhold every year until this feature is removed;
- The board adopts or renews a poison pill without shareholder approval since the beginning of 2005, does not commit to putting it to shareholder vote within 12 months of adoption, or reneges on a commitment to put the pill to a vote, and has not yet received a withhold recommendation for this issue;
- The board failed to act on a shareholder proposal that received approval by a majority of the shares outstanding the previous year;
- The board failed to act on a shareholder proposal that received approval of the majority of shares cast for the previous two consecutive years;
- The board failed to act on takeover offers where the majority of the shareholders tendered their shares;
- At the previous board election, any director received more than 50 percent withhold votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold rate;
- The company is a Russell 3000 company that underperformed its industry group (GICS group) under the criteria discussed in the section "Performance Test for Directors".
WITHHOLD from Inside Directors and Affiliated Outside Directors (per the Classification of Directors below) when:
- The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating;
- The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
- The company lacks a formal nominating committee, even if board attests that the independent directors fulfill the functions of such a committee;
- The full board is less than majority independent.
WITHHOLD from the members of the Audit Committee if:
- The non - audit fees paid to the auditor are excessive (see discussion under Auditor Ratification);
- A material weakness identified in the Section 404 Sarbanes-Oxley Act disclosures rises to a level of serious concern; there are chronic internal control issues and an absence of established effective control mechanisms;
- There is persuasive evidence that the audit committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.
WITHHOLD from the members of the Compensation Committee if:
- There is a negative correlation between the chief executive's pay and company performance (see discussion under Equity Compensation Plans);
- The company reprices underwater options for stock, cash or other consideration without prior shareholder approval, even if allowed in their equity plan;
- The company fails to submit one-time transfers of stock options to a shareholder vote;
- The company fails to fulfill the terms of a burn rate commitment they made to shareholders;
- The company has backdated options (see "Options Backdating" policy);
- The company has poor compensation practices (see "Poor Pay Practices" policy). Poor pay practices may warrant withholding votes from the CEO and potentially the entire board as well.
WITHHOLD from directors, individually or the entire board, for egregious actions or failure to replace management as appropriate.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD
Vote AGAINST proposals to classify the board. Vote FOR proposals to repeal classified boards, and to elect all directors annually.
INDEPENDENT CHAIR (SEPARATE CHAIR/CEO)
Generally vote FOR shareholder proposals requiring an independent director fill the position of chair, unless there are compelling reasons to recommend against the proposal, such as a counterbalancing governance structure. This should include all of the following:
- Has a designated lead director, elected by and from the independent board members with clearly delineated and comprehensive duties. (The role may alternatively reside with a presiding director, vice chairman, or rotating lead director; however the director must serve a minimum of one year in order to qualify as a lead director.) At a minimum these should include:
- Presiding at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors,
- Serving as liaison between the chairman and the independent directors,
- Approving information sent to the board,
- Approving meeting agendas for the board,
- Approves meetings schedules to assure that there is sufficient time for discussion of all agenda items,
- Having the authority to call meetings of the independent directors,
- If requested by major shareholders, ensuring that he is available for consultation and direct communication;
- Two-thirds independent board;
- All-independent key committees;
- Established governance guidelines;
- The company does not under-perform its peers*.
* Starting in 2007, the industry peer group used for this evaluation will change from the 4-digit GICS group to the average of the 12 companies in the same 6-digit GICS group that are closest in revenue to the company, and identified on the executive compensation page of proxy analyses. To fail, the company must under-perform its index and industry group on all 4 measures (1 and 3 year performance, industry peers, and index).
MAJORITY VOTE SHAREHOLDER PROPOSALS
Generally vote FOR precatory and binding resolutions requesting that the board change the company's bylaws to stipulate that directors need to be elected with an affirmative majority of votes cast, provided it does not conflict with the state law where the company is incorporated. Binding resolutions need to allow for a carve-out for a plurality vote standard when there are more nominees than board seats. Companies are strongly encouraged to also adopt a post-election policy (also know as a director resignation policy) that will provide guidelines so that the company will promptly address the situation of a holdover director.
3. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Vote CASE-BY-CASE on the election of directors in contested elections, considering the following factors:
- Long-term financial performance of the target company relative to its industry;
- Management's track record;
- Background to the proxy contest;
- Qualifications of director nominees (both slates);
- Strategic plan of dissident slate and quality of critique against management;
- Likelihood that the proposed goals and objectives can be achieved (both slates);
- Stock ownership positions.
REIMBURSING PROXY SOLICITATION EXPENSES
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting in conjunction with support of a dissident slate, vote FOR the reimbursement of all appropriate proxy solicitation expenses associated with the election.
4. TAKEOVER DEFENSES
POISON PILLS
Vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it UNLESS the company has: (1) A shareholder approved poison pill in place; or (2) The company has adopted a policy concerning the adoption of a pill in the future specifying that the board will only adopt a shareholder rights plan if either:
- Shareholders have approved the adoption of the plan; or
- The board, in its exercise of its fiduciary responsibilities, determines that it is in the best interest of shareholders under the circumstances to adopt a pill without the delay in adoption that would result from seeking stockholder approval (i.e. the "fiduciary out" provision). A poison pill adopted under this fiduciary out will be put to a shareholder ratification vote within twelve months of adoption or expire. If the pill is not approved by a majority of the votes cast on this issue, the plan will immediately terminate.
Vote FOR shareholder proposals calling for poison pills to be put to a vote within a time period of less than one year after adoption. If the company has no non-shareholder approved poison pill in place and has adopted a policy with the provisions outlined above, vote AGAINST the proposal. If these conditions are not met, vote FOR the proposal, but with the caveat that a vote within twelve months would be considered sufficient.
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing on the features of the shareholder rights plan. Rights plans should contain the following attributes:
- No lower than a 20% trigger, flip-in or flip-over;
- A term of no more than three years;
- No dead-hand, slow-hand, no-hand or similar feature that limits the ability of a future board to redeem the pill;
- Shareholder redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying offer is announced, ten percent of the shares may call a special meeting or seek a written consent to vote on rescinding the pill.
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
5. MERGERS AND CORPORATE RESTRUCTURINGS
For mergers and acquisitions, review and evaluate the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:
- Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction and strategic rationale.
- Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal.
- Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions.
- Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value.
- Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
- Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
6. STATE OF INCORPORATION
REINCORPORATION PROPOSALS
Vote CASE-BY-CASE on proposals to change a company's state of incorporation, taking into consideration both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, comparative economic benefits, and a comparison of the jurisdictional laws. Vote FOR re-incorporation when the economic factors outweigh any neutral or negative governance changes.
7. CAPITAL STRUCTURE
COMMON STOCK AUTHORIZATION
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock authorized for issuance using a model developed by ISS. Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being de-listed or if a company's ability to continue to operate as a going concern is uncertain.
In addition, for capital requests that are less than or equal to 300 percent of the current authorized shares and marginally fail the calculated allowable cap (i.e., exceed the allowable cap by no more than 5 percent) vote on a CASE-BY-CASE basis, In this situation, vote FOR the increase based on the company's performance, and whether the company's ongoing use of shares has shown prudence.
ISSUE STOCK FOR USE WITH RIGHTS PLAN
Vote AGAINST proposals that increase authorized common stock for the explicit purpose of implementing a non-shareholder approved shareholder rights plan (poison pill).
PREFERRED STOCK
Vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Vote FOR proposals to create "de-clawed" blank check preferred stock (stock that cannot be used as a takeover defense). Vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Vote AGAINST proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose. Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns.
8. EXECUTIVE AND DIRECTOR COMPENSATION
POOR PAY PRACTICES
WITHHOLD from compensation committee members, CEO, and potentially the entire board, if the company has poor compensation practices, such as:
- Egregious employment contracts (e.g., those containing multi-year guarantees for bonuses and grants);
- Excessive perks that dominate compensation (e.g., tax gross-ups for personal use of corporate aircraft);
- Huge bonus payouts without justifiable performance linkage or proper disclosure;
- Performance metrics that are changed (e.g., canceled or replaced during the performance period without adequate explanation of the action and the link to performance);
- Egregious pension/SERP (supplemental executive retirement plan) payouts (e.g., the inclusion of additional years of service not worked or inclusion of performance-based equity awards in the pension calculation);
- New CEO awarded an overly generous new hire package (e.g., including excessive "make whole" provisions or any of the poor pay practices listed in this policy);
- Excessive severance provisions (e.g., including excessive change in control payments);
- Change in control payouts without loss of job or substantial diminution of job duties;
- Internal pay disparity;
- Options backdating (covered in a separate policy); and
EQUITY COMPENSATION PLANS
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity plan if any of the following factors apply:
- The total cost of the company's equity plans is unreasonable;
- The plan expressly permits the repricing of stock options without prior shareholder approval;
- There is a disconnect between CEO pay and the company's performance;
- The company's three year burn rate exceeds the greater of 2% and the mean plus 1 standard deviation of its industry group; or
- The plan is a vehicle for poor pay practices.
DIRECTOR COMPENSATION
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the cost of the plans against the company's allowable cap.
On occasion, director stock plans that set aside a relatively small number of shares when combined with employee or executive stock compensation plans exceed the allowable cap. Vote for the plan if ALL of the following qualitative factors in the board's compensation are met and disclosed in the proxy statement:
- Director stock ownership guidelines with a minimum of three times the annual cash retainer.
- Vesting schedule or mandatory holding/deferral period:
- A minimum vesting of three years for stock options or restricted stock; or
- Deferred stock payable at the end of a three-year deferral period.
- Mix between cash and equity:
- A balanced mix of cash and equity, for example 40% cash/60% equity or 50% cash/50% equity; or
- If the mix is heavier on the equity component, the vesting schedule or deferral period should be more stringent, with the lesser of five years or the term of directorship.
- No retirement/benefits and perquisites provided to non-employee directors; and
- Detailed disclosure provided on cash and equity compensation delivered
to each non-employee director for the most recent fiscal year in a
table. The column headers for the table may include the following:
name of each non-employee director, annual retainer, board meeting
fees, committee retainer, committee-meeting fees, and equity grants.
EMPLOYEE STOCK PURCHASE PLANS--QUALIFIED PLANS
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR employee stock purchase plans where all of the following apply:
- Purchase price is at least 85% of fair market value;
- Offering period is 27 months or less; and
- The number of shares allocated to the plan is ten percent or less of the outstanding shares.
EMPLOYEE STOCK PURCHASE PLANS--NON-QUALIFIED PLANS
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR nonqualified employee stock purchase plans with all the following features:
- Broad-based participation (i.e., all employees of the company with the exclusion of individuals with 5% or more of beneficial ownership of the company);
- Limits on employee contribution, which may be a fixed dollar amount or expressed as a percent of base salary;
- Company matching contribution up to 25% of employee's contribution, which is effectively a discount of 20% from market value;
- No discount on the stock price on the date of purchase, since there is a company matching contribution.
OPTIONS BACKDATING
In cases where a company has practiced options backdating, WITHHOLD on a CASE-BY-CASE basis from the members of the compensation committee, depending on the severity of the practices and the subsequent corrective actions on the part of the board. WITHHOLD from the compensation committee members who oversaw the questionable options grant practices or from current compensation committee members who fail to respond to the issue proactively, depending on several factors, including, but not limited to:
- Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;
- Length of time of options backdating;
- Size of restatement due to options backdating;
- Corrective actions taken by the board or compensation committee, such as canceling or repricing backdated options, or recouping option gains on backdated grants;
- Adoption of a grant policy that prohibits backdating, and creation of a fixed grant schedule or window period for equity grants going forward.
SEVERANCE AGREEMENTS FOR EXECUTIVES/GOLDEN PARACHUTES
Vote FOR shareholder proposals to require golden parachutes or executive severance agreements to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes. An acceptable parachute should include, but is not limited to, the following:
- The triggering mechanism should be beyond the control of management;
- The amount should not exceed three times base amount (defined as the average annual taxable W-2 compensation) during the five years prior to the year in which the change of control occurs;
- Change-in-control payments should be double-triggered, i.e., (1) after a change in control has taken place, and (2) termination of the executive as a result of the change in control. Change in control is defined as a change in the company ownership structure.
9. CORPORATE RESPONSIBILITY
ANIMAL RIGHTS
Generally vote AGAINST proposals to phase out the use of animals in product testing unless:
- The company is conducting animal testing programs that are unnecessary or not required by regulation;
- The company is conducting animal testing when suitable alternatives are accepted and used at peer firms;
- The company has been the subject of recent, significant controversy related to its testing programs.
DRUG PRICING AND RE-IMPORTATION
Generally vote AGAINST proposals requesting that companies implement specific price restraints on pharmaceutical products, unless the company fails to adhere to legislative guidelines or industry norms in its product pricing. Vote CASE-BY-CASE on proposals requesting that the company evaluate their product pricing considering:
- The existing level of disclosure on pricing policies;
- Deviation from established industry pricing norms;
- The company's existing initiatives to provide its products to needy consumers;
- Whether the proposal focuses on specific products or geographic regions.
Generally vote FOR proposals requesting that companies report on the financial and legal impact of their policies regarding prescription drug re-importation unless such information is already publicly disclosed. Generally vote AGAINST proposals requesting that companies adopt specific policies to encourage or constrain prescription drug re-importation.
GENETICALLY MODIFIED FOODS
Vote AGAINST proposals asking companies to voluntarily label genetically engineered (GE) ingredients in their products, or alternatively to provide interim labeling and eventually eliminate GE ingredients due to the costs and feasibility of labeling and/or phasing out the use of GE ingredients.
TOBACCO
Most tobacco-related proposals (such as on second-hand smoke, advertising to youth, and spin-offs of tobacco-related business) should be evaluated on a CASE-BY-CASE basis.
TOXIC CHEMICALS
Generally vote FOR resolutions requesting that a company discloses its policies related to toxic chemicals. Vote CASE-BY-CASE on resolutions requesting that companies evaluate and disclose the potential financial and legal risks associated with utilizing certain chemicals.
Generally vote AGAINST resolutions requiring that a company reformulate its products within a certain timeframe, unless such actions are required by law in specific markets.
ARCTIC NATIONAL WILDLIFE REFUGE
Generally vote AGAINST request for reports outlining potential environmental damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:
- New legislation is adopted allowing development and drilling in the ANWR region;
- The company intends to pursue operations in the ANWR; and
- The company has not disclosed an environmental risk report for its ANWR operations.
CONCENTRATED AREA FEEDING OPERATIONS (CAFOS)
Vote FOR resolutions requesting that companies report to shareholders on the risks and liabilities associated with CAFOs, unless:
- The company has publicly disclosed guidelines for its corporate and contract farming operations, including compliance monitoring; or
- The company does not directly source from CAFOs.
GLOBAL WARMING AND KYOTO PROTOCOL COMPLIANCE
Generally vote FOR proposals requesting a report on greenhouse gas emissions from company operations and/or products unless this information is already publicly disclosed or such factors are not integral to the company's line of business. Generally vote AGAINST proposals that call for reduction in greenhouse gas emissions by specified amounts or within a restrictive time frame unless the company lags industry standards and has been the subject of recent, significant fines or litigation resulting from greenhouse gas emissions.
Generally vote FOR resolutions requesting that companies outline their preparations to comply with standards established by Kyoto Protocol signatory markets unless:
- The company does not maintain operations in Kyoto signatory markets;
- The company already evaluates and substantially discloses such information; or,
- Greenhouse gas emissions do not significantly impact the company's core businesses.
POLITICAL CONTRIBUTIONS
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's political contributions considering: recent significant controversy or litigation related to the company's political contributions or governmental affairs; and the public availability of a policy on political contributions. Vote AGAINST proposals barring the company from making political contributions.
LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation to social factors, such as corporate downsizings, customer or employee satisfaction, community involvement, human rights, environmental performance, predatory lending, and executive/employee pay disparities.
OUTSOURCING/OFF-SHORING
Vote CASE-BY-CASE on proposals calling for companies to report on the risks associated with outsourcing, considering: the risks associated with certain international markets; the utility of such a report to shareholders; the existence of a publicly available code of corporate conduct that applies to international operations.
COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS
Vote CASE-BY-CASE on requests for reports detailing the company's operations in a particular country and on proposals to implement certain human rights standards at company facilities or those of its suppliers and to commit to outside, independent monitoring.
10. MUTUAL FUND PROXIES
ELECTION OF DIRECTORS
Vote CASE-BY-CASE on the election of directors and trustees, following the same guidelines for uncontested directors for public company shareholder meetings. However, mutual fund boards do not usually have compensation committees, so do not withhold for the lack of this committee.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
- Past performance as a closed-end fund;
- Market in which the fund invests;
- Measures taken by the board to address the discount; and
- Past shareholder activism, board activity, and votes on related proposals.
ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board.
REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation expenses. When supporting the dissidents, vote FOR the reimbursement of the proxy solicitation expenses.
FIRST AMERICAN INVESTMENT FUNDS, INC.
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit (1) to Post-Effective Amendment No. 21, Filed on May 15, 1995 (File Nos. 033-16905, 811-05309)).
(a)(2) Articles Supplementary, designating new series and new share classes (Incorporated by reference to Exhibit (1) to Post-Effective Amendment No. 36, Filed on April 15, 1998 (File Nos. 033-16905, 811-05309)).
(a)(3) Articles Supplementary, designating new series and new share classes (Incorporated by reference to Exhibit (a)(2) to Post-Effective Amendment No. 54, Filed on June 27, 2001 (File Nos. 033-16905, 811-05309)).
(a)(4) Articles Supplementary, designating new series (Incorporated by reference to Exhibit (a)(3) to Post-Effective Amendment No. 61, Filed on April 30, 2002 (File Nos. 033-16905, 811-05309)).
(a)(5) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(4) to Post-Effective Amendment No. 65, Filed on October 24, 2002 (File Nos. 033-16905, 811-05309)).
(a)(6) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(5) to Post-Effective Amendment No. 66, Filed on January 28, 2003 (File Nos. 033-16905, 811-05309)).
(a)(7) Articles Supplementary decreasing authorizations of specified classes and series and decreasing total authorized shares (Incorporated by reference to Exhibit (a)(6) to Post-Effective Amendment No. 70, filed on June 30, 2004 (File nos. 033-16905, 811-05309)).
(a)(8) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(7) to Post-Effective Amendment No. 72, filed on September 24, 2004 (File Nos. 033-16905, 811-05309)).
(a)(9) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(9) to Post-Effective Amendment No. 84, filed on December 20, 2006 (File Nos. 033-16905, 811-05309)).
(a)(10) Articles Supplementary designating new series (Incorporated by reference to Exhibit (a)(10) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(a)(11) Articles Supplementary designating new series.*
(b) Bylaws, as amended.*
(c) Not applicable.
(d)(1) Investment Advisory Agreement dated April 2, 1991, between the Registrant and First Bank National Association (Incorporated by reference to Exhibit (d)(1) to Post-Effective Amendment No. 73, Filed on December 2, 2004 (File Nos. 033-16905, 811-05309)).
(d)(2) Assignment and Assumption Agreement dated May 2, 2001, relating to
assignment of Investment Advisory Agreement to U.S. Bancorp Piper
Jaffray Asset Management, Inc. (Incorporated by reference to Exhibit
(d)(3) to Post-Effective Amendment No. 73, Filed on December 2, 2004
(File Nos. 033-16905, 811-05309)).
(d)(3) Amendment to Investment Advisory Agreement dated May 3, 2007 relating to authority to appoint a sub-advisor to any series of the Registrant (Incorporated by reference to Exhibit (d)(3) to Post-Effective Amendment No. 86, filed on May 17, 2007 (File Nos. 033-16905, 811-05309)).
(d)(4) Exhibit A to Investment Advisory Agreement, effective December 5, 2007.*
(d)(5) Expense Limitation Agreement between Registrant and FAF Advisors, Inc., dated February 28, 2007, effective through February 29, 2008 (Incorporated by reference to Exhibit (d)(5) to Post-Effective Amendment No. 85, filed on February 28, 2007 (File Nos. 033-16905, 811-05309)).
(d)(6) Expense Limitation and Fee Reimbursement Agreement between Registrant and FAF Advisors, Inc., dated October 29, 2007, effective through October 31, 2008, with respect to certain Bond Funds (Incorporated by reference to Exhibit (d)(7) to Post-Effective Amendment No. 89, filed October 29, 2007 (File Nos. 033-16905, 811-05309)).
(d)(7) Expense Limitation Agreement between Registrant and FAF Advisors, Inc., dated July 31, 2007, effective through July 31, 2008, with respect to the Quantitative Funds (Incorporated by reference to Exhibit (d)(6) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(d)(8) Sub-Advisory Agreement dated December 9, 2004, by and among Registrant, FAF Advisors, Inc. and J.P. Morgan Investment Management Inc. with respect to International Fund (Incorporated by reference to Exhibit (d)(6) to Post-Effective Amendment No. 74, Filed on January 31, 2005 (File Nos. 033-16905, 811-05309)).
(d)(9) Letter of Agreement dated March 28, 2007, by and between FAF Advisors and J.P. Morgan Investment Management Inc. with respect to International Fund (Incorporated by reference to Exhibit (d)(8) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(d)(10) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and among Registrant, FAF Advisors, Inc. and J.P. Morgan Investment Management Inc. with respect to International Fund (Incorporated by reference to Exhibit (d)(11) to Post Effective Amendment No. 86, filed on May 17, 2007 (File Nos. 033-16905, 811-05309)).
(d)(11) Sub-Advisory Agreement dated November 27, 2006, by and between FAF Advisors, Inc. and Altrinsic Global Advisors, LLC with respect to International Select Fund (Incorporated by reference to Exhibit (d)(6) to Post-Effective Amendment No. 84, filed on December 20, 2006 (File Nos. 033-16905, 811-05309)).
(d)(12) Letter of Agreement dated March 28, 2007, by and between FAF Advisors and Altrinsic Global Advisors, LLC with respect to International Select Fund (Incorporated by reference to Exhibit (d)(11) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(d)(13) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Altrinsic Global Advisors, LLC with respect to
International Select Fund (Incorporated by reference to Exhibit
(d)(12) to Post Effective Amendment No. 86, filed on May 17, 2007
(File Nos. 033-16905, 811-05309)).
(d)(14) Sub-Advisory Agreement dated February 22, 2007, by and between FAF
Advisors, Inc. and Hansberger Global Investors, Inc. with respect to
International Select Fund (Incorporated by reference to Exhibit
(d)(13) to Post-Effective Amendment No. 87, filed on July 31, 2007
(File Nos. 033-16905, 811-05309)).
(d)(15) Letter of Agreement dated March 28, 2007, by and between FAF Advisors and Hansberger Global Investors, Inc. with respect to International Select Fund (Incorporated by reference to Exhibit (d)(14) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(d)(16) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Hansberger Global Investors, Inc. with respect
to International Select Fund (Incorporated by reference to Exhibit
(d)(13) to Post Effective Amendment No. 86, filed on May 17, 2007
(File Nos. 033-16905, 811-05309)).
(d)(17) Sub-Advisory Agreement dated November 27, 2006, by and between FAF Advisors, Inc. and Lazard Asset Management LLC with respect to International Select Fund (Incorporated by reference to Exhibit (d)(8) to Post-Effective Amendment No. 84, filed on December 20, 2006 (File Nos. 033-16905, 811-05309)).
(d)(18) Letter of Agreement dated March 28, 2007, by and between FAF Advisors and Lazard Asset Management LLC with respect to International Select Fund (Incorporated by reference to Exhibit (d)(17) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(d)(19) Amendment to Sub-Advisory Agreement dated May 3, 2007, by and between
FAF Advisors, Inc. and Lazard Asset Management LLC with respect to
International Select Fund (Incorporated by reference to Exhibit
(d)(14) to Post Effective Amendment No. 86, filed on May 17, 2007
(File Nos. 033-16905, 811-05309)).
(e)(1) Distribution Agreement between Registrant and Quasar Distributors,
LLC, effective July 1, 2007 (Incorporated by reference to Exhibit
(e)(1) to Post-Effective Amendment No. 87, filed on July 31, 2007
(File Nos. 033-16905, 811-05309)).
(e)(2) Fee Limitation Agreement between Registrant and Quasar Distributors,
LLC, dated October 29, 2007, effective through October 31, 2008, with
respect to certain Bond Funds (Incorporated by reference to Exhibit
(e)(2) to Post-Effective Amendment No. 89, filed October 29, 2007
(File Nos. 033-16905, 811-05309)).
(e)(3) Form of Dealer Agreement (Incorporated by reference to Exhibit (e)(3) to Post-Effective Amendment No. 88, filed on October 3, 2007 (File Nos. 033-16905, 811-05309)).
(f)(1) Deferred Compensation Plan for Directors dated January 1, 2000, as amended December 2007.*
(f)(2) Deferred Compensation Plan for Directors, Amended Summary of Terms dated February 2005 (Incorporated by reference to Exhibit (f)(2) to Post-Effective Amendment No. 76, filed May 13, 2005 (File Nos. 033-16905, 811-05309)).
(g)(1) Custody Agreement dated July 1, 2006, between the Registrant and U.S. Bank National Association (Incorporated by reference to Exhibit (g)(1) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(g)(2) Amendment to Custody Agreement dated July 1, 2007, by and between Registrant and U.S. Bank National Association (Incorporated by reference to Exhibit (g)(2) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(g)(3) Exhibit C effective June 20, 2007 to Custody Agreement dated July 1, 2006 (Incorporated by reference to Exhibit (g)(3) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(g)(4) Exhibit D effective December 5, 2007 to Custody Agreement dated July 1, 2006.*
(g)(5) Custodian Agreement dated July 1, 2005, by and between Registrant and State Street Bank and Trust Company with respect to International Fund (Incorporated by reference to Exhibit (g)(5) to Post-Effective Amendment No. 77, Filed on August 3, 2005 (File Nos. 033-16905, 811-05309)).
(g)(6) Letter Amendment dated November 21, 2006 to the Custodian Agreement dated July 1, 2005 by and between Registrant and State Street Bank and Trust Company with respect to International Select Fund (Incorporated by reference to Exhibit (g)(3) to Post-Effective Amendment No. 84, filed on December 20, 2006 (File Nos. 033-16905, 811-05309)).
(g)(7) Letter Amendment dated December 6, 2007 to the Custodian Agreement dated July 1, 2005 by and between Registrant and State Street Bank and Trust Company with respect to Global Infrastructure Fund.*
(h)(1) Administration Agreement dated July 1, 2006, by and between Registrant and FAF Advisors, Inc. (Incorporated by reference to Exhibit (h)(1) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(h)(2) Schedule A to Administration Agreement dated July 1, 2006 between Registrant and FAF Advisors, Inc. (Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(h)(3) Sub-Administration Agreement dated July 1, 2005, by and between FAF Advisors, Inc. and U.S. Bancorp Fund Services, LLC (Incorporated by reference to Exhibit (h)(2) to Post-Effective Amendment No. 77, Filed on August 3, 2005 (File Nos. 033-16905, 811-05309)).
(h)(4) Transfer Agent and Shareholder Servicing Agreement dated September 19, 2006, by and among Registrant, U.S. Bancorp Fund Services, LLC, and FAF Advisors, Inc. (Incorporated by reference
to Exhibit (h)(4) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(h)(5) Exhibit A to Transfer Agent and Shareholder Servicing Agreement effective April 1, 2007 (Incorporated by reference to Exhibit (h)(5) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(h)(6) Securities Lending Agreement dated January 1, 2007, by and between Registrant and U.S. Bank National Association (Incorporated by reference to Exhibit (h)(6) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(h)(7) Global Securities Lending Agreement Supplement effective January 1, 2007, by and between Registrant and U.S. Bank National Association.*
(i) Opinion and Consent of Dorsey & Whitney LLP.*
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Amended and Restated Distribution and Service Plan for Class A, B, C, and R shares, effective September 19, 2006 (Incorporated by reference to Exhibit (m) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(n) Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3, effective December 5, 2007.*
(o) Reserved.
(p)(1) First American Funds Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940 and Section 406 of the Sarbanes-Oxley Act (Incorporated by reference to Exhibit (p)(1) to Post-Effective Amendment No. 88, filed on October 3, 2007 (File Nos. 033-16905, 811-05309)).
(p)(2) FAF Advisors, Inc. Code of Ethics adopted under Rule 17j-1 of the
Investment Company Act of 1940 (Incorporated by reference to Exhibit
(p)(2) to Post-Effective Amendment No. 87, filed on July 31, 2007
(File Nos. 033-16905, 811-05309)).
(p)(3) J.P. Morgan Investment Management Inc. Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective February 1, 2005, revised September 29, 2005 (Incorporated by reference to Exhibit (p)(3) to Post-Effective Amendment No. 80, Filed on August 31, 2006 (File Nos. 033-16905, 811-05309)).
(p)(4) Altrinsic Global Advisors, LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective November 1, 2004, as amended December 1, 2005, March 1, 2006, May 3, 2006, and January 1, 2007 (Incorporated by reference to Exhibit (p)(4) to Post-Effective Amendment No. 85, filed on February 28, 2007 (File Nos. 033-16905, 811-05309)).
(p)(5) Hansberger Global Investors, Inc. Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, as amended May 17, 2007 (Incorporated by reference to Exhibit (p)(2) to Post-Effective Amendment No. 87, filed on July 31, 2007 (File Nos. 033-16905, 811-05309)).
(p)(6) Lazard Asset Management LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, as amended February 2006 (Incorporated by reference to Exhibit (p)(6) to Post-Effective Amendment No. 84, filed on December 20, 2006 (File Nos. 033-16905, 811-05309)).
(p)(7) Quasar Distributors, LLC Code of Ethics adopted under Rule 17j-1 of the Investment Company Act of 1940, effective September 1, 2005 (Incorporated by reference to Exhibit (p)(4) to Post-Effective Amendment No. 79, Filed on December 27, 2005 (File Nos. 033-16905, 811-05309)).
(q) Power of Attorney dated February 20, 2007 (Incorporated by reference to Exhibit (q) to Post-Effective Amendment No. 85, filed on February 28, 2007 (File Nos. 033-16905, 811-05309)).
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that each present or former director, officer, agent and employee of the Registrant or any predecessor or constituent corporation, and each person who, at the request of the Registrant, serves or served another business enterprise in any such capacity, and the heirs and personal representatives of each of the foregoing shall be indemnified by the Registrant to the fullest extent permitted by law against all expenses, including without limitation amounts of judgments, fines, amounts paid in settlement, attorneys' and accountants' fees, and costs of litigation, which shall necessarily or reasonably be incurred by him or her in connection with any action, suit or proceeding to which he or she was, is or shall be a party, or with which he or she may be threatened, by reason of his or her being or having been a director, officer, agent or employee of the Registrant or such predecessor or constituent corporation or such business enterprise, whether or not he or she continues to be such at the time of incurring such expenses. Such indemnification may include without limitation the purchase of insurance and advancement of any expenses, and the Registrant shall be empowered to enter into agreements to limit the liability of directors and officers of the Registrant. No indemnification shall be made in violation of the General Corporation Law of the State of Maryland or the Investment Company Act of 1940 (the "1940 Act"). The Registrant's Articles of Incorporation and Bylaws further provide that no director or officer of the Registrant shall be liable to the Registrant or its stockholders for money damages, except (i) to the extent that it is proved that such director or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (ii) to the extent that a judgment or other final adjudication adverse to such director or officer is entered in a proceeding based on a finding in the proceeding that such director's or officer's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The foregoing shall not be construed to protect or purport to protect any director or officer of the Registrant against any liability to the Registrant or its stockholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such office. The Registrant undertakes that no indemnification or advance will be made unless it is consistent with Sections 17(h) or 17(i) of the Investment Company Act of 1940, as now enacted or hereafter amended, and Securities and Exchange Commission rules, regulations, and releases (including, without limitation, Investment Company Act of 1940 Release No. 11330, September 2, 1980).
Insofar as the indemnification for liability arising under the Securities Act of 1933, as amended, (the "1933 Act") may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act, as amended, and will be governed by the final adjudication of such issue. The Registrant maintains officers' and directors' liability insurance providing coverage, with certain exceptions, for acts and omissions in the course of the covered persons' duties as officers and directors.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser, FAF Advisors, Inc. (the "Manager"), is described in the section of each series' Statement of Additional Information, filed as part of this Registration Statement, entitled "Investment Advisory and Other Services." The directors and officers of the Manager are listed below, together with their principal occupation or other positions of a substantial nature during the past two fiscal years.
Thomas S. Schreier, Jr., President and Chief Executive Officer and chair of Board of Directors, FAF Advisors, Inc. ("FAF Advisors"), Minneapolis, MN (May 2001 to present); President, First American Investment Funds, Inc. ("FAIF"), First American Funds, Inc. ("FAF"), First American Strategy Funds, Inc. ("FASF"), and eight closed-end funds advised by FAF Advisors--American Strategic Income Portfolio Inc., American Strategic Income Portfolio Inc. - II, American Strategic Income Portfolio Inc. - III, American Select Portfolio Inc., American Municipal Income Portfolio Inc., Minnesota Municipal Income Portfolio Inc., First American Minnesota Municipal Income Fund II, Inc., and American Income Fund, Inc. collectively referred to as the First American Closed-End Funds ("FACEF"), Minneapolis, MN (February 2001 to present); President, Mount Vernon Securities Lending Trust, Minneapolis, MN (October 2005 to present); Vice President - Investments, FAIF, FAF, FASF, FACEF, and Mount Vernon Securities Lending Trust, Minneapolis, MN (August 2007 to present); Chief Financial Officer, FAF Advisors, Minneapolis, MN (August 2007 to present).
Charles R. Manzoni, Jr., General Counsel and Secretary and director on Board of Directors, FAF Advisors, Minneapolis, MN (June 2004 to present).
Joseph M. Ulrey, III, Chief Financial Officer and director on Board of Directors, FAF Advisors, Minneapolis, MN (December 2004 to present).
Frank L. Wheeler, Head of Distribution, FAF Advisors, Minneapolis, MN (April 2007 to present); Managing Director and Head of Institutional Marketing, Merrill Lynch Investment Managers, Princeton, New Jersey (2004 to April 2007).
David H. Lui, Chief Compliance Officer, FAF Advisors, Minneapolis, MN (March 2005 to present); Chief Compliance Officer, FAIF, FAF, FASF, and FACEF, Minneapolis, MN (February 2005 to present); Chief Compliance Officer, Mount Vernon Securities Lending Trust, Minneapolis, MN (October
2005 to present); Chief Compliance Officer, Franklin Advisers, Inc. and Chief Compliance Counsel, Franklin Templeton Investments, San Mateo, CA (2004 to February 2005).
Jason K. Mitchell, Anti-Money Laundering Officer, FAF Advisors, Minneapolis, MN (September 2006 to present); Anti-Money Laundering Officer, FAIF, FAF, FASF, FACEF, and Mount Vernon Securities Lending Trust, Minneapolis, MN (September 2006 to present); Compliance Manager, FAF Advisors, Minneapolis, MN (June 2006 to September 2006); Compliance Analyst, FAF Advisors, Minneapolis, MN (October 2004 to June 2006).
John P. Kinsella, Senior Vice President and Director of Tax, FAF Advisors, Minneapolis, MN (February 2003 to present).
ITEM 27. PRINCIPAL UNDERWRITERS
Registrant's distributor, Quasar Distributors, LLC (the "Distributor") acts as principal underwriter and distributor for the following investment companies:
AIP Alternative Strategies Funds
Akros Absolute Return Fund
Al Frank Funds
Allied Asset Advisors Funds
Alpine Equity Trust
Alpine Income Trust
Alpine Series Trust
American Trust Allegiance Fund
Appleton Group
Brandes Investment Trust
Brandywine Blue Funds, Inc.
Brazos Mutual Funds
Bridges Investment Fund, Inc.
Buffalo Funds
Capital Advisors Funds
Chase Funds
Cookson Peirce
Counterpoint Select Fund
Country Funds
Cullen Funds
Duncan-Hurst Funds
Edgar Lomax Value Fund
Empiric Funds, Inc.
Everest Funds
Fairholme Fund
FFTW Funds, Inc.
FIMCO Funds
First American Funds, Inc.
First American Investment Funds, Inc.
First American Strategy Funds, Inc.
Fort Pitt Capital Group, Inc.
Fund X Funds
Fusion Funds, LLC
Geneva Advisors All Cap Growth Fund
Glenmede Fund, Inc.
Glenmede Portfolios
Greenspring Fund
Greenville Small Cap Growth Fund
Guinness Atkinson Funds
Harding Loevner Funds
Hennessy Funds, Inc
Hennessy Mutual Funds, Inc.
Hester Total Return Fund
High Pointe Funds
Hodges Fund
Hotchkis and Wiley Funds
Huber Funds
Intrepid Capital Management
Jacob Internet Fund Inc.
Jensen Portfolio
Julius Baer Funds
Kensington Funds
Keystone Mutual Funds
Kiewit Investment Fund LLLP
Kirr Marbach Partners Funds, Inc
Leader Short Term Bond Fund
LKCM Funds
Marketfield Fund
Masters' Select Fund Trust
Matrix Asset Advisors, Inc.
McCarthy Fund
Monetta Fund, Inc.
Monetta Trust
MP63 Fund
Muhlenkamp (Wexford Trust)
Nicholas Funds
Osterweis Funds
Perkins Capital Management
Permanent Portfolio Funds
Perritt Opportunities Funds
Phocas Financial Funds
PIA Funds
PIC Funds
Portfolio 21
Primecap Odyssey Funds
Prospector Funds
Prudent Bear Funds, Inc.
Purisima Funds
Quaker Investment Trust
Rainier Funds
Rigel Capital, LLC
Rockland Small Cap Growth Fund
Seascape Funds
Snow Fund
Stephens Management Co.
Summit Funds
Teberg Fund
Thompson Plumb (TIM)
TIFF Investment Program, Inc.
Tygh Capital Management
USA Mutuals Funds
Villere Fund
Wisconsin Capital Funds, Inc.
WY Funds
The board members and officers of Quasar Distributors, LLC and their positions or offices with the Registrant are identified in the following table. Unless otherwise noted, the business address for each board member or officer is Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee, WI 53202.
POSITION AND OFFICES WITH POSITION AND OFFICES WITH
NAME UNDERWRITER REGISTRANT
------------------------- ------------------------------ -------------------------
James R. Schoenike President, Board Member None
Joe D. Redwine Board Member None
Robert Kern Board Member None
777 East Wisconsin Avenue
Milwaukee, WI 53202
Eric W. Falkeis Board Member None
777 East Wisconsin Avenue
Milwaukee, WI 53202
Susan L. La Fond Financial Operations Principal None
Andrew M. Strnad Secretary None
Teresa Cowan Assistant Secretary None
|
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by FAF Advisors, Inc., 800 Nicollet Mall, Minneapolis,
Minnesota, 55402, and U.S. Bancorp Fund Services, LLC, 615 E. Michigan Street,
Milwaukee, Wisconsin 53202.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
SIGNATURES
As required by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Post-Effective Amendment to its Registration Statement Nos. 033-16905 and 811-05309 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on the 17th day of December 2007.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By: /s/ Thomas S. Schreier, Jr.
------------------------------------
Thomas S. Schreier, Jr.
President
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated and on December 17, 2007.
SIGNATURE TITLE
--------- --------------------------------------------------
/s/ Thomas S. Schreier, Jr. President
-------------------------------
Thomas S. Schreier, Jr.
/s/ Charles D. Gariboldi, Jr. Treasurer (principal financial/accounting officer)
-------------------------------
Charles D. Gariboldi, Jr.
* Director
-------------------------------
Benjamin R. Field, III
* Director
-------------------------------
Victoria J. Herget
* Director
-------------------------------
Roger A. Gibson
* Director
-------------------------------
John P. Kayser
* Director
-------------------------------
Leonard W. Kedrowski
* Director
-------------------------------
Richard K. Riederer
* Director
-------------------------------
Joseph D. Strauss
* Director
-------------------------------
Virginia L. Stringer
* Director
-------------------------------
James M. Wade
|
* Richard J. Ertel, by signing his name hereto, does hereby sign this document on behalf of each of the above-named Directors of First American Investment Funds, Inc. pursuant to the powers of attorney duly executed by such persons.
By: /s/ Richard J. Ertel Attorney-in-Fact
---------------------------
Richard J. Ertel
|
INDEX TO EXHIBITS
EXHIBIT NUMBER NAME OF EXHIBIT -------------- --------------- (a)(11) Articles Supplementary (b) Bylaws, as amended (d)(4) Exhibit A to Investment Advisory Agreement (f)(1) Directors' Deferred Compensation Plan (g)(4) Exhibit D to Custody Agreement (U.S. Bank) (g)(7) Letter Amendment to Custodian Agreement (State Street) (h)(7) Global Securities Lending Agreement Supplement (i) Opinion and Consent of Dorsey & Whitney LLP (n) Rule 18f-3 Multiple Class Plan |
FIRST AMERICAN INVESTMENT FUNDS, INC.
ARTICLES SUPPLEMENTARY
[December 2007]
First American Investment Funds, Inc., a corporation organized under the laws of the State of Maryland (the "Corporation"), does hereby file for record with the State Department of Assessments and Taxation of Maryland the following Articles Supplementary to its Articles of Incorporation:
FIRST: The Corporation is registered as an open-end investment company under the Investment Company Act of 1940 (the "1940 Act"). As hereinafter set forth, the Corporation has classified its authorized capital stock in accordance with the Maryland General Corporation Law.
SECOND: Immediately before the increase in total authorized shares hereinafter set forth and the classifications hereinafter set forth, the Corporation had authority to issue three hundred fifty-eight billion (358,000,000,000) shares of common stock (individually, a "Share" and collectively, the "Shares"), of the par value of $.0001 per Share and of the aggregate par value of thirty-five million eight hundred thousand dollars ($35,800,000), classified as follows:
(1) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares.
(2) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(3) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(4) Class B, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(5) Class B, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(6) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares.
(7) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(8) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(9) Class C, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(10) Class D Common Shares (formerly referred to as "stock fund shares"): Two billion (2,000,000,000) Shares.
(11) Class D, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(12) Class D, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(13) Class D, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(14) Class D, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(15) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares.
(16) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(17) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(18) Class E, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(19) Class E, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(20) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares.
(21) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(22) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(23) Class G, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(24) Class G, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(25) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares.
(26) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(27) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(28) Class H, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(29) Class H, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(30) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares.
(31) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(32) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(33) Class I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(34) Class I, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(35) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares.
(36) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(37) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(38) Class J, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(39) Class J, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(40) Class M Common Shares: Two billion (2,000,000,000) Shares.
(41) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(42) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(43) Class M, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(44) Class N Common Shares: Two billion (2,000,000,000) Shares.
(45) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(46) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(47) Class N, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(48) Class P Common Shares: Two billion (2,000,000,000) Shares.
(49) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(50) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(51) Class P, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(52) Class P, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(53) Class Q Common Shares: Two billion (2,000,000,000) Shares.
(54) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(55) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(56) Class Q, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(57) Class Q, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(58) Class T Common Shares: Two billion (2,000,000,000) Shares.
(59) Class T, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(60) Class T, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(61) Class T, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(62) Class T, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(63) Class V Common Shares: Two billion (2,000,000,000) Shares.
(64) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(65) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(66) Class V, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(67) Class V, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(68) Class X Common Shares: Two billion (2,000,000,000) Shares.
(69) Class X, Series 1 Common Shares: Two billion (2,000,000,000) Shares.
(70) Class X, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(71) Class Y Common Shares: Two billion (2,000,000,000) Shares.
(72) Class Y, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(73) Class Y, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(74) Class AA Common Shares: Two billion (2,000,000,000) Shares.
(75) Class AA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(76) Class AA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(77) Class AA, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(78) Class AA, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(79) Class DD Common Shares: Two billion (2,000,000,000) Shares.
(80) Class DD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(81) Class DD, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(82) Class DD, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(83) Class EE Common Shares: Two billion (2,000,000,000) Shares.
(84) Class EE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(85) Class EE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(86) Class EE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(87) Class HH Common Shares: Two billion (2,000,000,000) Shares.
(88) Class HH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(89) Class HH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(90) Class HH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(91) Class HH, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(92) Class I I Common Shares: Two billion (2,000,000,000) Shares.
(93) Class I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(94) Class I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(95) Class JJ Common Shares: Two billion (2,000,000,000) Shares.
(96) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(97) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(98) Class KK Common Shares: Two billion (2,000,000,000) Shares.
(99) Class KK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(100) Class KK, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(101) Class LL Common Shares: Two billion (2,000,000,000) Shares.
(102) Class LL, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(103) Class LL, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(104) Class LL, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(105) Class LL, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(106) Class MM Common Shares: Two billion (2,000,000,000) Shares.
(107) Class MM, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(108) Class MM, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(109) Class QQ Common Shares: Two billion (2,000,000,000) Shares.
(110) Class QQ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(111) Class QQ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(112) Class QQ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(113) Class QQ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(114) Class SS Common Shares: Two billion (2,000,000,000) Shares.
(115) Class SS, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(116) Class SS, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(117) Class SS, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(118) Class SS, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(119) Class TT Common Shares: Two billion (2,000,000,000) Shares.
(120) Class TT, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(121) Class TT, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(122) Class TT, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(123) Class TT, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(124) Class UU Common Shares: Two billion (2,000,000,000) Shares.
(125) Class UU, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(126) Class UU, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(127) Class UU, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(128) Class UU, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(129) Class WW Common Shares: Two billion (2,000,000,000) Shares.
(130) Class WW, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(131) Class WW, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(132) Class WW, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(133) Class WW, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(134) Class XX Common Shares: Two billion (2,000,000,000) Shares.
(135) Class XX, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(136) Class XX, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(137) Class XX, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(138) Class XX, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(139) Class ZZ Common Shares: Two billion (2,000,000,000) Shares.
(140) Class ZZ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(141) Class ZZ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(142) Class ZZ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(143) Class ZZ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(144) Class AAA Common Shares: Two billion (2,000,000,000) Shares.
(145) Class AAA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(146) Class AAA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(147) Class BBB Common Shares: Two billion (2,000,000,000) Shares.
(148) Class BBB, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(149) Class BBB, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(150) Class CCC Common Shares: Two billion (2,000,000,000) Shares.
(151) Class CCC, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(152) Class DDD Common Shares: Two billion (2,000,000,000) Shares.
(153) Class DDD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(154) Class EEE Common Shares: Two billion (2,000,000,000) Shares.
(155) Class EEE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(156) Class EEE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(156) Class EEE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(158) Class EEE, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(159) Class FFF Common Shares: Two billion (2,000,000,000) Shares.
(160) Class FFF, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(161) Class FFF, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(162) Class FFF, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(163) Class GGG Common Shares: Two billion (2,000,000,000) Shares.
(164) Class GGG, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(165) Class GGG, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(166) Class GGG, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(167) Class GGG, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(168) Class HHH Common Shares: Two billion (2,000,000,000) Shares.
(169) Class HHH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(170) Class HHH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(171) Class HHH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(172) Class I I I Common Shares: Two billion (2,000,000,000) Shares.
(173) Class I I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(174) Class I I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(175) Class I I I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(176) Class JJJ Common Shares: Two billion (2,000,000,000) Shares.
(177) Class JJJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(178) Class JJJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(179) Class JJJ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(180) Unclassified Shares: Zero (-0-) Shares.
THIRD: Pursuant to the authority contained in Sections 2-105(c) and 2-208.1 of the Maryland General Corporation Law, the Board of Directors of the Corporation, by resolution adopted at a meeting held on December 5, 2007, authorized an increase in the total authorized shares of the Corporation from three hundred fifty-eight billion (358,000,000,000) shares of common stock, of the par value of $.0001 per share, and of the aggregate par value of thirty-five million eight hundred thousand dollars ($35,800,000), to three hundred sixty-two billion (362,000,000,000) shares of common stock, of the par value of $.0001 per share, and of the aggregate par value of thirty-six million two hundred thousand dollars ($36,200,000).
FOURTH: Pursuant to the authority contained in Article IV of the Articles of Incorporation of the Corporation and Section 2-208 of the Maryland General Corporation Law, the Board of Directors of the Corporation, by resolution adopted December 5, 2007, classified the following additional Shares out of the authorized, unissued and unclassified Shares of the Corporation:
(1) Class KKK Common Shares: Two billion (2,000,000,000) Shares.
(2) Class KKK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
FIFTH: The Shares classified pursuant to FOURTH above shall have the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, set forth in the Corporation's Articles of Incorporation. Any Class or Series of Shares classified pursuant to FOURTH above may be subject to such charges and expenses (including by way of example, but not by way of limitation, such front-end and deferred sales charges as may be permitted under the 1940 Act and rules of the National Association of Securities Dealers, Inc. ("NASD"), expenses under Rule 12b-1 plans, administration plans, service plans, or other plans or arrangements, however designated) adopted from time to time by the Board of Directors of the Corporation in accordance, to the extent applicable, with the 1940 Act, and all of the charges and expenses to which such a Class or Series is subject shall be borne by such Class or Series and shall be appropriately reflected (in the manner determined by the Board of Directors) in determining the net asset value and the amounts payable with respect to dividends and distributions on and redemptions or liquidations of, the Shares of such Class or Series.
SIXTH: Immediately after the increase in total authorized shares hereinbefore set forth and the classifications hereinbefore set forth and upon filing for record of these Articles Supplementary, the Corporation has authority to issue three hundred sixty-two billion (362,000,000,000) shares of common stock (individually, a "Share" and collectively, the "Shares"), of the par value of $.0001 per Share and of the aggregate par value of thirty-six million two hundred thousand dollars ($36,200,000), classified as follows:
(1) Class B Common Shares (formerly referred to as "fixed income fund shares"): Two billion (2,000,000,000) Shares.
(2) Class B, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(3) Class B, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(4) Class B, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(5) Class B, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(6) Class C Common Shares (formerly referred to as "municipal bond fund shares"): Two billion (2,000,000,000) Shares.
(7) Class C, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(8) Class C, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(9) Class C, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(10) Class D Common Shares (formerly referred to as "stock fund shares"): Two billion (2,000,000,000) Shares.
(11) Class D, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(12) Class D, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(13) Class D, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(14) Class D, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(15) Class E Common Shares (formerly referred to as "special equity fund shares"): Two billion (2,000,000,000) Shares.
(16) Class E, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(17) Class E, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(18) Class E, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(19) Class E, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(20) Class G Common Shares (formerly referred to as "balanced fund shares"): Two billion (2,000,000,000) Shares.
(21) Class G, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(22) Class G, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(23) Class G, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(24) Class G, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(25) Class H Common Shares (formerly referred to as "equity index fund shares"): Two billion (2,000,000,000) Shares.
(26) Class H, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(27) Class H, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(28) Class H, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(29) Class H, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(30) Class I Common Shares (formerly referred to as "intermediate term income fund shares"): Two billion (2,000,000,000) Shares.
(31) Class I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(32) Class I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(33) Class I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(34) Class I, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(35) Class J Common Shares (formerly referred to as "limited term income fund shares"): Two billion (2,000,000,000) Shares.
(36) Class J, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(37) Class J, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(38) Class J, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(39) Class J, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(40) Class M Common Shares: Two billion (2,000,000,000) Shares.
(41) Class M, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(42) Class M, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(43) Class M, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(44) Class N Common Shares: Two billion (2,000,000,000) Shares.
(45) Class N, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(46) Class N, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(47) Class N, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(48) Class P Common Shares: Two billion (2,000,000,000) Shares.
(49) Class P, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(50) Class P, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(51) Class P, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(52) Class P, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(53) Class Q Common Shares: Two billion (2,000,000,000) Shares.
(54) Class Q, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(55) Class Q, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(56) Class Q, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(57) Class Q, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(58) Class T Common Shares: Two billion (2,000,000,000) Shares.
(59) Class T, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(60) Class T, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(61) Class T, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(62) Class T, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(63) Class V Common Shares: Two billion (2,000,000,000) Shares.
(64) Class V, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(65) Class V, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(66) Class V, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(67) Class V, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(68) Class X Common Shares: Two billion (2,000,000,000) Shares.
(69) Class X, Series 1 Common Shares: Two billion (2,000,000,000) Shares.
(70) Class X, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(71) Class Y Common Shares: Two billion (2,000,000,000) Shares.
(72) Class Y, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(73) Class Y, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(74) Class AA Common Shares: Two billion (2,000,000,000) Shares.
(75) Class AA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(76) Class AA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(77) Class AA, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(78) Class AA, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(79) Class DD Common Shares: Two billion (2,000,000,000) Shares.
(80) Class DD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(81) Class DD, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(82) Class DD, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(83) Class EE Common Shares: Two billion (2,000,000,000) Shares.
(84) Class EE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(85) Class EE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(86) Class EE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(87) Class HH Common Shares: Two billion (2,000,000,000) Shares.
(88) Class HH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(89) Class HH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(90) Class HH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(91) Class HH, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(92) Class I I Common Shares: Two billion (2,000,000,000) Shares.
(93) Class I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(94) Class I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(95) Class JJ Common Shares: Two billion (2,000,000,000) Shares.
(96) Class JJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(97) Class JJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(98) Class KK Common Shares: Two billion (2,000,000,000) Shares.
(99) Class KK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(100) Class KK, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(101) Class LL Common Shares: Two billion (2,000,000,000) Shares.
(102) Class LL, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(103) Class LL, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(104) Class LL, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(105) Class LL, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(106) Class MM Common Shares: Two billion (2,000,000,000) Shares.
(107) Class MM, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(108) Class MM, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(109) Class QQ Common Shares: Two billion (2,000,000,000) Shares.
(110) Class QQ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(111) Class QQ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(112) Class QQ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(113) Class QQ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(114) Class SS Common Shares: Two billion (2,000,000,000) Shares.
(115) Class SS, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(116) Class SS, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(117) Class SS, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(118) Class SS, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(119) Class TT Common Shares: Two billion (2,000,000,000) Shares.
(120) Class TT, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(121) Class TT, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(122) Class TT, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(123) Class TT, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(124) Class UU Common Shares: Two billion (2,000,000,000) Shares.
(125) Class UU, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(126) Class UU, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(127) Class UU, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(128) Class UU, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(129) Class WW Common Shares: Two billion (2,000,000,000) Shares.
(130) Class WW, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(131) Class WW, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(132) Class WW, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(133) Class WW, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(134) Class XX Common Shares: Two billion (2,000,000,000) Shares.
(135) Class XX, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(136) Class XX, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(137) Class XX, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(138) Class XX, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(139) Class ZZ Common Shares: Two billion (2,000,000,000) Shares.
(140) Class ZZ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(141) Class ZZ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(142) Class ZZ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(143) Class ZZ, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(144) Class AAA Common Shares: Two billion (2,000,000,000) Shares.
(145) Class AAA, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(146) Class AAA, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(147) Class BBB Common Shares: Two billion (2,000,000,000) Shares.
(148) Class BBB, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(149) Class BBB, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(150) Class CCC Common Shares: Two billion (2,000,000,000) Shares.
(151) Class CCC, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(152) Class DDD Common Shares: Two billion (2,000,000,000) Shares.
(153) Class DDD, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(154) Class EEE Common Shares: Two billion (2,000,000,000) Shares.
(155) Class EEE, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(156) Class EEE, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(156) Class EEE, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(158) Class EEE, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(159) Class FFF Common Shares: Two billion (2,000,000,000) Shares.
(160) Class FFF, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(161) Class FFF, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(162) Class FFF, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(163) Class GGG Common Shares: Two billion (2,000,000,000) Shares.
(164) Class GGG, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(165) Class GGG, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(166) Class GGG, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(167) Class GGG, Series 5 Common Shares: Two billion (2,000,000,000) Shares.
(168) Class HHH Common Shares: Two billion (2,000,000,000) Shares.
(169) Class HHH, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(170) Class HHH, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(171) Class HHH, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(172) Class I I I Common Shares: Two billion (2,000,000,000) Shares.
(173) Class I I I, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(174) Class I I I, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(175) Class I I I, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(176) Class JJJ Common Shares: Two billion (2,000,000,000) Shares.
(177) Class JJJ, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(178) Class JJJ, Series 3 Common Shares: Two billion (2,000,000,000) Shares.
(179) Class JJJ, Series 4 Common Shares: Two billion (2,000,000,000) Shares.
(180) Class KKK Common Shares: Two billion (2,000,000,000) Shares.
(181) Class KKK, Series 2 Common Shares: Two billion (2,000,000,000) Shares.
(182) Unclassified Shares: Zero (-0-) Shares.
SEVENTH: The aforesaid action by the Board of Directors of the Corporation was taken pursuant to authority and power contained in the Articles of Incorporation of the Corporation.
The undersigned officer of the Corporation hereby acknowledges, in the name and on behalf of the Corporation, the foregoing Articles Supplementary to be the corporate act of the Corporation and further certifies that, to the best of his or her knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Vice President and witnessed by its Assistant Secretary on December 6, 2007.
FIRST AMERICAN INVESTMENT FUNDS, INC.
By /s/ Jeffery M. Wilson ------------------------------------- Jeffery M. Wilson, Vice President |
WITNESS:
/s/ James D. Alt ------------------------------------- James D. Alt, Assistant Secretary |
NAME CHANGE FROM "SECURAL MUTUAL FUNDS, INC." TO "FIRST AMERICAN INVESTMENT FUNDS, INC." APPROVED AT BOARD OF DIRECTORS' MEETINGS ON FEBRUARY 12, 1991; AMENDMENT ADDING NEW SECTION 8 TO ARTICLE I APPROVED AT BOARD OF DIRECTORS' MEETING ON DECEMBER 15, 1992; AMENDMENTS TO ARTICLE III APPROVED AT BOARD OF DIRECTORS' MEETINGS ON SEPTEMBER 7, 1993; AMENDMENT ADDING NEW SECTION 3 TO ARTICLE V APPROVED AT BOARD OF DIRECTORS' MEETING ON DECEMBER 7, 1993; AMENDMENT TO ARTICLE V, SECTION 3 CHANGING FUND NAMES APPROVED AT BOARD OF DIRECTORS' MEETING ON MARCH 7, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 8, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 7, 1994; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON MARCH 6, 1995; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 6, 1995; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 4, 1997; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 23, 1998; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 9, 1998; AMENDMENT TO ARTICLE II, SECTION 8 SPECIFYING COMMITTEE QUORUM APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 23, 1999; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 8, 1999; AMENDMENT TO ARTICLE I, SECTION 4 PROVIDING FOR ELECTRONIC VOTING APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 8, 1999; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 28, 2001; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 1, 2001; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 21, 2002; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF CLASSES AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 18, 2002; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAME CHANGES AND NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 4, 2002; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAME CHANGES APPROVED AT BOARD OF DIRECTORS MEETING ON FEBRUARY 18, 2004; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON SEPTEMBER 16, 2004; AMENDMENT TO ARTICLE V, SECTION 3 CHANGING FUND NAMES APPROVED AT BOARD OF DIRECTORS' MEETING ON FEBRUARY 15, 2005; AMENDMENT TO ARTICLE V, SECTION 3 CHANGING FUND NAMES APPROVED AT BOARD OF DIRECTORS' MEETING ON JUNE 21, 2005; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 5, 2006; AMENDMENTS TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON JUNE 20, 2007; AMENDMENT TO ARTICLE V, SECTION 3 PROVIDING FOR NAMES OF NEW CLASS AND SERIES APPROVED AT BOARD OF DIRECTORS MEETING ON DECEMBER 5, 2007.
BYLAWS
OF
FIRST AMERICAN INVESTMENT FUNDS, INC.
(A MARYLAND CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1. Meetings. Annual or special meetings of stockholders may be held on such date and at such time as shall be set or provided for by the Board of Directors or, if not so set or provided for, then as stated in the notice of meeting. The notice of meeting shall state the purpose or purposes for which the meeting is called.
SECTION 2. Place of Meetings. All meetings of stockholders shall be held at such place in the United States as is set or provided for by the Board of Directors or, if not so set or provided for, then as stated in the notice of meeting.
SECTION 3. Organization. At any meeting of the stockholders, in the absence of the Chairman of the Board of Directors, if any, and of the President or a Vice President acting in his stead, the stockholders shall choose a chairman to preside over the meeting. In the absence of the Secretary or an Assistant Secretary, acting in his stead, the chairman of the meeting shall appoint a secretary to keep the record of all the votes and minutes of the proceedings.
SECTION 4. Proxies. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy submitted by any means permitted by Maryland Statutes Section 2-507(c)(3) or any successor provision of Maryland Statutes. No proxy shall be voted after eleven months from its date unless it provides for a longer period.
SECTION 5. Voting. At any meeting of the stockholders, every stockholder shall be entitled to one vote or a fractional vote on each matter submitted to a vote for each share or fractional share of stock standing in his name on the books of the Corporation as of the close of business on the record date for such meeting. Unless the voting is conducted by inspectors, all questions relating to the qualifications of voters, validity of proxies and acceptance or rejection of votes shall be decided by the chairman of the meeting.
SECTION 6. Record Date; Closing of Transfer Books. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall be not more than sixty days, and in case of a meeting of stockholders not less than ten days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting.
SECTION 7. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.
SECTION 8. Calling of Special Meeting of Shareholders. A special meeting of stockholders shall be called upon the written request of the holders of shares entitled to cast not less than 10% of all votes entitled to vote at such meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number, Qualification, Tenure and Vacancies. The initial Board of Directors shall consist of five (5) directors. Except as hereinafter provided, a director shall be
elected to serve until his successor shall be elected and shall qualify or until his earlier death, resignation, retirement or removal. The directors may at any time when the stockholders are not assembled in meeting, establish, increase or decrease their own number by majority vote of the entire Board of Directors; provided, that the number of directors shall never be less than three (3)
nor more than twelve (12). The number of directors may not be decreased so as to affect the term of any incumbent director. If the number be increased, the additional directors to fill the vacancies thus created may, except as hereinafter provided, by elected by majority vote of the entire Board of Directors. Any vacancy occurring for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum; provided, however, that after filling any vacancy for any cause whatsoever two-thirds (2/3) of the entire Board of Directors shall have been elected by the stockholders of the Corporation. A director elected under any circumstance shall be elected to hold office until his successor is elected and qualified, or until such director's earlier death, resignation, retirement or removal.
SECTION 2. When Stockholder Meeting Required. If at any time less than a
majority of the directors holding office were elected by the stockholders of the
Corporation, the directors or the President or Secretary shall cause a meeting
of stockholders to be held as soon as possible and, in any event, within sixty
(60) days, unless extended by order of the Securities and Exchange Commission,
for the purpose of electing directors to fill any vacancy.
SECTION 3. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and place as shall be determined from time to time by agreement or fixed by resolution of the Board of Directors.
SECTION 4. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or President and shall be called by the Secretary upon the written request of any two (2) directors.
SECTION 5. Notice of Meetings. Except as otherwise provided in these Bylaws, notice need not be given of regular meetings of the Board of Directors held at times fixed by agreement or resolution of the Board of Directors. Notice of special meetings of the Board of Directors, stating the place, date and time thereof, shall be given not less than two (2) days before such meeting to each director. Notice to a director may be given personally, by telegram, cable or wireless, by telephone, by mail, or by leaving such notice at his place of residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the director at his address as it appears on the records of the Corporation. Meetings may be held at any time without notice if all the directors are present, or if those not present waive notice of the meeting in writing. If the President shall determine in advance that a quorum would not be present on the date set for any regular or special meeting, such meeting may be held at such later date, time and place as he shall determine, upon at least twenty-four (24) hours' notice.
SECTION 6. Quorum. A majority of the directors then in office, at a meeting duly assembled, but not less than one-third of the entire Board of Directors nor in any event less than two directors, shall constitute a quorum for the transaction of business. The vote of a majority of
directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws. If at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained.
SECTION 7. Removal. At any meeting of stockholders, duly called and at which a quorum is present, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies.
SECTION 8. Committees. The Board of Directors, may, by resolution adopted by a majority of the entire Board of Directors, from time to time appoint from among its members one or more committees as it may determine. Each committee appointed by the Board of Directors shall be composed of two (2) or more directors and may, to the extent provided in such resolution, have and exercise all the powers of the Board of Directors, except the power to declare dividends, to issue stock or to recommend to stockholders any action requiring stockholder approval. Each such committee shall serve at the pleasure of the Board of Directors. Each such committee shall keep a record of its proceedings and shall adopt its own rules of procedure. It shall make reports as may be required by the Board of Directors.
A quorum of any committee shall consist of one-third of its members unless the committee is comprised of two or three members, in which event a quorum shall consist of two members. If a Pricing Committee is appointed and a member of such committee is absent from a committee meeting, the remainder of the committee (although not constituting a quorum) may appoint another director to act in place of the absent member.
ARTICLE III
OFFICERS AND CHAIRMAN OF THE BOARD OF DIRECTORS
SECTION 1. Offices. The elected officers of the Corporation shall be the President, the Secretary and the Treasurer, and may also include one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the Board of Directors may determine. Any two or more offices may be held by the same person, except that no person may hold both the office of President and the office of Vice President. A person who holds more than one office in the Corporation shall not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer.
SECTION 2. Selection, Term of Office and Vacancies. The initial officers of the Corporation shall be elected by the Board of Directors at the first meeting of the Board of Directors. Additional officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall serve at the pleasure of the Board of Directors or until his earlier death, resignation or retirement. If any office becomes vacant, the vacancy shall be filled by the Board of Directors.
SECTION 3. Chairman of the Board. The Board of Directors may elect one of its members as Chairman of the Board. Except as otherwise provided in these Bylaws, in the event the Board of Directors elects a Chairman of the Board of Directors, he shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. The Chairman of the Board of Directors will under no circumstances be deemed to be an "officer" of the Corporation, and an individual serving as Chairman of the Board of Directors will not be deemed to be an "affiliated person" with respect to the Corporation (under the Investment Company Act of 1940, as amended) solely by virtue of such person's position as Chairman of the Board of Directors of the Corporation.
SECTION 4. President. The president shall be the chair executive officer of the Corporation and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. He shall perform the duties of the Chairman of the Board of Directors in the event there is no Chairman or in the event the Chairman is absent.
SECTION 5. Vice Presidents. A Vice President shall perform such duties as may be assigned by the President or the Board of Directors. In the absence of the President and in accordance with such order of priority as may be established by the Board of Directors, he may perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
SECTION 6. Secretary. The Secretary shall (a) keep the minutes of the stockholders' and Board of Directors' meetings in one or more books provided for that purpose, and shall perform like duties for committees when requested, (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized or required by law, and (d) in general perform all duties incident to the office of Secretary and such other duties as may be assigned by the President or the Board of Directors.
SECTION 7. Assistant Secretaries. One or more Assistant Secretaries may be elected by the Board of Directors or appointed by the President. In the absence of the Secretary and in accordance with such order as may be established by the Board of Directors, an Assistant Secretary shall have the power to perform his duties including the certification, execution and attestation of corporate records and corporate instruments. Assistant Secretaries shall perform such other duties as may be assigned to them by the President or the Board of Directors.
SECTION 8. Treasurer. The Treasurer (a) shall be the principal financial officer of the Corporation, (b) shall see that all funds and securities of the Corporation are held by the custodian of the Corporation's assets, and (c) shall be the principal accounting officer of the Corporation.
SECTION 9. Assistant Treasurers. One or more Assistant Treasurers may be elected by the Board of Directors or appointed by the President. In the absence of the Treasurer and in
accordance with such order as may be established by the Board of Directors, an Assistant Treasurer shall have the power to perform his duties. Assistant Treasurers shall perform such other duties as may be assigned to them by the President or the Board of Directors.
SECTION 10. Other Officers. The Board of Directors may appoint or may authorize the Chairman of the Board or the President to appoint such other officers and agents as the appointer may deem necessary and proper, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the appointer.
SECTION 11. Bond. If required by the Board of Directors, the Treasurer and such other directors, officers, employees and agents of the Corporation as the Board of Directors may specify, shall give the Corporation a bond in such amount, in such form and with such security, surety or sureties, as may be satisfactory to the Board of Directors, conditioned on the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, or removal from their office of all books, papers, vouchers, monies, securities and property of whatever kind in their possession belonging to the Corporation. All premiums on such bonds shall be paid by the Corporation.
SECTION 12. Removal. Any officer (or the Chairman of the Board of Directors) of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the officer (or the Chairman of the Board of Directors) so removed.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Stock Certificates. Certificates representing shares of stock of the Corporation shall be in such form consistent with the laws of the State of Maryland as shall be determined by the Board of Directors. All certificates for shares of stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares of stock represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the Corporation.
SECTION 2. Redemption and Transfer. Any holder of stock of the Corporation desiring to redeem or transfer shares of stock standing in the name of such holder on the books of the Corporation shall deliver to the Corporation or to its agent duly authorized for such purpose a written unconditional request, in form acceptable to the Corporation, for such redemption or transfer. If certificates evidencing such shares have been issued, such certificates shall also be so delivered in transferable form duly endorsed or accompanied by all necessary stock transfer stamps or currency or certified or bank cashier's check payable to the order of the Corporation for the appropriate price thereof. The Corporation or its duly authorized agent may require that the signature of a redeeming stockholder on any or all of the request, endorsement or stock power be guaranteed and that other documentation in accordance with the custom of brokers be
so delivered where appropriate, such as proof of capacity and power to make request or transfer. All documents and funds shall be deemed to have been delivered only when physically deposited at such office or other place of deposit as the Corporation or its duly authorized agent shall from time to time designate. At any time during which the right of redemption is suspended or payment for such shares is postponed pursuant to the Investment Company Act of 1940, as amended, or any rule, regulation or order thereunder, any stockholder may withdraw his request (and certificates and funds, if any) or may leave the same on deposit, in which case the redemption price shall be the net asset value next applicable after such suspension or postponement is terminated.
SECTION 3. Lost, Mutilated, Destroyed or Wrongfully Taken Certificates. Any person claiming a stock certificate to have been lost, mutilated, destroyed or wrongfully taken, and who requests the issuance of a new certificate before the Corporation has notice that the certificate alleged to have been lost, mutilated, destroyed or wrongfully taken has been acquired by a bona fide purchaser, shall make an affidavit of that fact and shall give the Corporation and its transfer agents and registrars a bond, with sufficient surety, to indemnify them against any loss or claim arising as a result of the issuance of a new certificate. The form and amount of such bond and the surety thereon shall in each case be deemed sufficient if satisfactory to the President or Treasurer of the Corporation.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be established by resolution of the Board of Directors.
SECTION 2. Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a majority of the entire Board of Directors at any meeting of the Board of Directors.
SECTION 3. Names of Classes and Series of Shares. The names of the classes and series of shares which have been classified by the Corporation in its Articles of Incorporation and in Articles Supplementary shall be as follows:
Designation of Shares in Articles of Incorporation or Articles Supplementary Name of Class or Series -------------------------------------------------- ---------------------------------------------- Class B Common Shares............................. Core Bond Fund, Class A Class B, Series 2 Common Shares................... Core Bond Fund, Class Y Class B, Series 3 Common Shares................... Core Bond Fund, Class B Class B, Series 4 Common Shares................... Core Bond Fund, Class C Class B, Series 5 Common Shares................... Core Bond Fund, Class R Class C Common Shares............................. Intermediate Tax Free Fund, Class A Class C, Series 2 Common Shares................... Intermediate Tax Free Fund, Class Y |
Class C, Series 3 Common Shares................... Intermediate Tax Free Fund, Class B Class C, Series 4 Common Shares................... Intermediate Tax Free Fund, Class C Class D Common Shares............................. Large Cap Value Fund, Class A Class D, Series 2 Common Shares................... Large Cap Value Fund, Class Y Class D, Series 3 Common Shares................... Large Cap Value Fund, Class B Class D, Series 4 Common Shares................... Large Cap Value Fund, Class C Class D, Series 5 Common Shares................... Large Cap Value Fund, Class R Class E Common Shares............................. Mid Cap Value Fund, Class A Class E, Series 2 Common Shares................... Mid Cap Value Fund, Class Y Class E, Series 3 Common Shares................... Mid Cap Value Fund, Class B Class E, Series 4 Common Shares................... Mid Cap Value Fund, Class C Class E, Series 5 Common Shares................... Mid Cap Value Fund, Class R Class G Common Shares............................. Balanced Fund, Class A Class G, Series 2 Common Shares................... Balanced Fund, Class Y Class G, Series 3 Common Shares................... Balanced Fund, Class B Class G, Series 4 Common Shares................... Balanced Fund, Class C Class G, Series 5 Common Shares................... Balanced Fund, Class R Class H Common Shares............................. Equity Index Fund, Class A Class H, Series 2 Common Shares................... Equity Index Fund, Class Y Class H, Series 3 Common Shares................... Equity Index Fund, Class B Class H, Series 4 Common Shares................... Equity Index Fund, Class C Class H, Series 5 Common Shares................... Equity Index Fund, Class R Class I Common Shares............................. Intermediate Term Bond Fund, Class A Class I, Series 2 Common Shares................... Intermediate Term Bond Fund, Class Y Class I, Series 3 Common Shares................... Intermediate Term Bond Fund, Class B Class I, Series 4 Common Shares................... Intermediate Term Bond Fund, Class C Class I, Series 5 Common Shares................... Intermediate Term Bond Fund, Class R Class J Common Shares............................. Short Term Bond Fund, Class A Class J, Series 2 Common Shares................... Short Term Bond Fund, Class Y Class J, Series 3 Common Shares................... Short Term Bond Fund, Class B Class J, Series 4 Common Shares................... Short Term Bond Fund, Class C Class J, Series 5 Common Shares................... Short Term Bond Fund, Class R Class M Common Shares............................. Minnesota Intermediate Tax Free Fund, Class A Class M, Series 2 Common Shares................... Minnesota Intermediate Tax Free Fund, Class Y Class M, Series 3 Common Shares................... Minnesota Intermediate Tax Free Fund, Class B Class M, Series 4 Common Shares................... Minnesota Intermediate Tax Free Fund, Class C Class N Common Shares............................. Colorado Intermediate Tax Free Fund, Class A Class N, Series 2 Common Shares................... Colorado Intermediate Tax Free Fund, Class Y Class N, Series 3 Common Shares................... Colorado Intermediate Tax Free Fund, Class B Class N, Series 4 Common Shares................... Colorado Intermediate Tax Free Fund, Class C Class P Common Shares............................. Small-Mid Cap Core Fund, Class A Class P, Series 2 Common Shares................... Small-Mid Cap Core Fund, Class Y Class P, Series 3 Common Shares................... Small-Mid Cap Core Fund, Class B Class P, Series 4 Common Shares................... Small-Mid Cap Core Fund, Class C Class P, Series 5 Common Shares................... Reserved (formerly Technology Fund, Class R) Class Q Common Shares............................. International Fund, Class A |
Class Q, Series 2 Common Shares................... International Fund, Class Y Class Q, Series 3 Common Shares................... International Fund, Class B Class Q, Series 4 Common Shares................... International Fund, Class C Class Q, Series 5 Common Shares................... International Fund, Class R Class T Common Shares............................. Equity Income Fund, Class A Class T, Series 2 Common Shares................... Equity Income Fund, Class B Class T, Series 3 Common Shares................... Equity Income Fund, Class Y Class T, Series 4 Common Shares................... Equity Income Fund, Class C Class T, Series 5 Common Shares................... Equity Income Fund, Class R Class V Common Shares............................. Real Estate Securities Fund, Class A Class V, Series 2 Common Shares................... Real Estate Securities Fund, Class B Class V, Series 3 Common Shares................... Real Estate Securities Fund, Class Y Class V, Series 4 Common Shares................... Real Estate Securities Fund, Class C Class V, Series 5 Common Shares................... Real Estate Securities Fund, Class R Class X Common Shares............................. Oregon Intermediate Tax Free Fund, Class Y Class X, Series 2 Common Shares................... Oregon Intermediate Tax Free Fund, Class A Class X, Series 3 Common Shares................... Oregon Intermediate Tax Free Fund, Class C Class Y Common Shares............................. California Intermediate Tax Free Fund, Class A Class Y, Series 2 Common Shares................... California Intermediate Tax Free Fund, Class Y Class Y, Series 3 Common Shares................... California Intermediate Tax Free Fund, Class C Class AA Common Shares............................ Small Cap Value Fund, Class A Class AA, Series 2 Common Shares.................. Small Cap Value Fund, Class B Class AA, Series 3 Common Shares.................. Small Cap Value Fund, Class Y Class AA, Series 4 Common Shares.................. Small Cap Value Fund, Class C Class AA, Series 5 Common Shares.................. Small Cap Value Fund, Class R Class DD Common Shares............................ Tax Free Fund, Class A Class DD, Series 2 Common Shares.................. Tax Free Fund, Class B Class DD, Series 3 Common Shares.................. Tax Free Fund, Class Y Class DD, Series 4 Common Shares.................. Tax Free Fund, Class C Class EE Common Shares............................ Minnesota Tax Free Fund, Class A Class EE, Series 2 Common Shares.................. Minnesota Tax Free Fund, Class B Class EE, Series 3 Common Shares.................. Minnesota Tax Free Fund, Class Y Class EE, Series 4 Common Shares.................. Minnesota Tax Free Fund, Class C Class HH Common Shares............................ High Income Bond Fund, Class A Class HH, Series 2 Common Shares.................. High Income Bond Fund, Class B Class HH, Series 3 Common Shares.................. High Income Bond Fund, Class Y Class HH, Series 4 Common Shares.................. High Income Bond Fund, Class C Class HH, Series 5 Common Shares.................. High Income Bond Fund, Class R Class I I Common Shares........................... California Tax Free Fund, Class A Class I I, Series 2 Common Shares................. California Tax Free Fund, Class C Class I I, Series 3 Common Shares................. California Tax Free Fund, Class Y Class JJ Common Shares............................ Arizona Tax Free Fund, Class A Class JJ, Series 2 Common Shares.................. Arizona Tax Free Fund, Class C Class JJ, Series 3 Common Shares.................. Arizona Tax Free Fund, Class Y Class KK Common Shares............................ Colorado Tax Free Fund, Class A Class KK, Series 2 Common Shares.................. Colorado Tax Free Fund, Class C |
Class KK, Series 3 Common Shares.................. Colorado Tax Free Fund, Class Y Class LL Common Shares............................ Total Return Bond Fund, Class A Class LL, Series 2 Common Shares.................. Total Return Bond Fund, Class B Class LL, Series 3 Common Shares.................. Total Return Bond Fund, Class C Class LL, Series 4 Common Shares.................. Total Return Bond Fund, Class Y Class LL, Series 5 Common Shares.................. Total Return Bond Fund, Class R Class MM Common Shares............................ Nebraska Tax Free Fund, Class A Class MM, Series 2 Common Shares.................. Nebraska Tax Free Fund, Class C Class MM, Series 3 Common Shares.................. Nebraska Tax Free Fund, Class Y Class QQ Common Shares............................ Large Cap Growth Opportunities Fund, Class A Class QQ, Series 2 Common Shares.................. Large Cap Growth Opportunities Fund, Class B Class QQ, Series 3 Common Shares.................. Large Cap Growth Opportunities Fund, Class C Class QQ, Series 4 Common Shares.................. Large Cap Growth Opportunities Fund, Class Y Class QQ, Series 5 Common Shares.................. Large Cap Growth Opportunities Fund, Class R Class SS Common Shares............................ Mid Cap Growth Opportunities Fund, Class A Class SS, Series 2 Common Shares.................. Mid Cap Growth Opportunities Fund, Class B Class SS, Series 3 Common Shares.................. Mid Cap Growth Opportunities Fund, Class C Class SS, Series 4 Common Shares.................. Mid Cap Growth Opportunities Fund, Class Y Class SS, Series 5 Common Shares.................. Mid Cap Growth Opportunities Fund, Class R Class TT Common Shares............................ Small Cap Growth Opportunities Fund, Class A Class TT, Series 2 Common Shares.................. Small Cap Growth Opportunities Fund, Class B Class TT, Series 3 Common Shares.................. Small Cap Growth Opportunities Fund, Class C Class TT, Series 4 Common Shares.................. Small Cap Growth Opportunities Fund, Class Y Class TT, Series 5 Common Shares.................. Small Cap Growth Opportunities Fund, Class R Class UU Common Shares............................ Small Cap Select Fund, Class A Class UU, Series 2 Common Shares.................. Small Cap Select Fund, Class B Class UU, Series 3 Common Shares.................. Small Cap Select Fund, Class C Class UU, Series 4 Common Shares.................. Small Cap Select Fund, Class Y Class UU, Series 5 Common Shares.................. Small Cap Select Fund, Class R Class WW Common Shares............................ Mid Cap Index Fund, Class A Class WW, Series 2 Common Shares.................. Mid Cap Index Fund, Class B Class WW, Series 3 Common Shares.................. Mid Cap Index Fund, Class C Class WW, Series 4 Common Shares.................. Mid Cap Index Fund, Class Y Class WW, Series 5 Common Shares.................. Mid Cap Index Fund, Class R Class XX Common Shares............................ Small Cap Index Fund, Class A Class XX, Series 2 Common Shares.................. Small Cap Index Fund, Class B Class XX, Series 3 Common Shares.................. Small Cap Index Fund, Class C Class XX, Series 4 Common Shares.................. Small Cap Index Fund, Class Y Class XX, Series 5 Common Shares.................. Small Cap Index Fund, Class R Class ZZ Common Shares............................ U.S. Government Mortgage Fund, Class A Class ZZ, Series 2 Common Shares.................. U.S. Government Mortgage Fund, Class B Class ZZ, Series 3 Common Shares.................. U.S. Government Mortgage Fund, Class C Class ZZ, Series 4 Common Shares.................. U.S. Government Mortgage Fund, Class Y Class ZZ, Series 5 Common Shares.................. U.S. Government Mortgage Fund, Class R Class AAA Common Shares........................... Missouri Tax Free Fund, Class A Class AAA, Series 2 Common Shares................. Missouri Tax Free Fund, Class Y |
Class AAA, Series 3 Common Shares................. Missouri Tax Free Fund, Class C Class BBB Common Shares........................... Ohio Tax Free Fund, Class A Class BBB, Series 2 Common Shares................. Ohio Tax Free Fund, Class C Class BBB, Series 3 Common Shares................. Ohio Tax Free Fund, Class Y Class CCC Common Shares........................... Short Tax Free Fund, Class A Class CCC, Series 2 Common Shares................. Short Tax Free Fund, Class Y Class DDD Common Shares........................... Intermediate Government Bond Fund, Class A Class DDD, Series 2 Common Shares................. Intermediate Government Bond Fund, Class Y Class EEE Common Shares........................... Large Cap Select Fund, Class A Class EEE, Series 2 Common Shares................. Large Cap Select Fund, Class B Class EEE, Series 3 Common Shares................. Large Cap Select Fund, Class C Class EEE, Series 4 Common Shares................. Large Cap Select Fund, Class R Class EEE, Series 5 Common Shares................. Large Cap Select Fund, Class Y Class FFF Common Shares........................... Inflation Protected Securities Fund, Class A Class FFF, Series 2 Common Shares................. Inflation Protected Securities Fund, Class C Class FFF, Series 3 Common Shares................. Inflation Protected Securities Fund, Class R Class FFF, Series 4 Common Shares................. Inflation Protected Securities Fund, Class Y Class GGG, Series Common Shares................... International Select Fund, Class A Class GGG, Series 2 Common Shares ................ International Select Fund, Class B Class GGG, Series 3 Common Shares................. International Select Fund, Class C Class GGG, Series 4 Common Shares................. International Select Fund, Class R Class GGG, Series 5 Common Shares................. International Select Fund, Class Y Class HHH Common Shares........................... Quantitative Large Cap Core Fund, Class A Class HHH, Series 2 Common Shares................. Quantitative Large Cap Core Fund, Class C Class HHH, Series 3 Common Shares................. Quantitative Large Cap Core Fund, Class R Class HHH, Series 4 Common Shares................. Quantitative Large Cap Core Fund, Class Y Class I I I Common Shares......................... Quantitative Large Cap Value Fund, Class A Class I I I, Series 2 Common Shares............... Quantitative Large Cap Value Fund, Class C Class I I I, Series 3 Common Shares............... Quantitative Large Cap Value Fund, Class R Class I I I, Series 4 Common Shares............... Quantitative Large Cap Value Fund, Class Y Class JJJ Common Shares........................... Quantitative Large Cap Growth Fund, Class A Class JJJ, Series 2 Common Shares................. Quantitative Large Cap Growth Fund, Class C Class JJJ, Series 3 Common Shares................. Quantitative Large Cap Growth Fund, Class R Class JJJ, Series 4 Common Shares................. Quantitative Large Cap Growth Fund, Class Y Class KKK Common Shares........................... Global Infrastructure Fund, Class A Class KKK, Series 2 Common Shares................. Global Infrastructure Fund, Class Y |
.
.
.
First American Investment Funds, Inc.
Exhibit A to Investment Advisory Agreement Effective December 5, 2007
Annual Advisory Fee as a Percentage
Portfolio Effective Date of Average Daily Net Assets
--------------------------------------- ------------------ -----------------------------------
Large Cap Value Fund (1) April 2, 1991 0.65%
Mid Cap Value Fund April 2, 1991 0.70%
Core Bond Fund April 2, 1991 0.50%
Intermediate Tax Free Fund April 2, 1991 0.50%
Intermediate Term Bond Fund September 15, 1992 0.50%
Equity Index Fund September 15, 1992 0.25%
Short Term Bond Fund September 15, 1992 0.50%
Balanced Fund (1) September 15, 1992 0.65%
Minnesota Intermediate Tax Free Fund December 31, 1993 0.50%
Colorado Intermediate Tax Free Fund December 31, 1993 0.50%
Small-Mid Cap Core Fund December 31, 1993 0.70%
International Fund December 31, 1993 1.00%
Equity Income Fund (1) January 31, 1994 0.65%
Real Estate Securities Fund June 12, 1995 0.70%
Oregon Intermediate Tax Free Fund August 5, 1997 0.50%
California Intermediate Tax Free Fund August 5, 1997 0.50%
Small Cap Value Fund November 21, 1997 0.70%
Tax Free Fund July 24, 1998 0.50%
Minnesota Tax Free Fund July 24, 1998 0.50%
California Tax Free Fund February 1, 2000 0.50%
Arizona Tax Free Fund February 1, 2000 0.50%
Colorado Tax Free Fund February 1, 2000 0.50%
Total Return Bond Fund February 1, 2000 0.60%
Nebraska Tax Free Fund February 28, 2001 0.50%
High Income Bond Fund February 28, 2001 0.70%
Large Cap Growth Opportunities Fund (1) May 2, 2001 0.65%
Mid Cap Growth Opportunities Fund May 2, 2001 0.70%
Small Cap Growth Opportunities Fund May 2, 2001 1.00%
Small Cap Select Fund May 2, 2001 0.70%
Mid Cap Index Fund May 2, 2001 0.25%
Small Cap Index Fund May 2, 2001 0.40%
U.S. Government Mortgage Fund May 2, 2001 0.50%
Missouri Tax Free Fund May 2, 2001 0.50%
Ohio Tax Free Fund April 30, 2002 0.50%
Short Tax Free Fund October 25, 2002 0.50%
Intermediate Government Bond Fund October 25, 2002 0.50%
Large Cap Select Fund (1) December 4, 2002 0.65%
Inflation Protected Securities Fund October 1, 2004 0.50%
International Select Fund December 20, 2006 1.00%
Quantitative Large Cap Core Fund June 20, 2007 0.30%
Quantitative Large Cap Growth Fund June 20, 2007 0.30%
Quantitative Large Cap Value Fund June 20, 2007 0.30%
Global Infrastructure Fund December 5, 2007 0.90%
|
(1) The Adviser has agreed to a breakpoint schedule with each of Large Cap Growth Opportunities Fund, Large Cap Select Fund, Large Cap Value Fund, Balanced Fund and Equity Income Fund. The advisory fee paid separately by each of these funds will be based on an annual rate of 0.65% for the first $3 billion of each fund's average daily net assets; 0.625% for average daily net assets in excess of $3 billion up to $5 billion; and 0.60% for average daily net assets in excess of $5 billion.
FIRST AMERICAN FUNDS
DEFERRED COMPENSATION PLAN FOR DIRECTORS
First Effective January 1, 2000
Amended September 2002
Further Amended July 2004
Further Amended February 2005
Further Amended December 2007
FIRST AMERICAN FUNDS
DEFERRED COMPENSATION PLAN FOR DIRECTORS
TABLE OF CONTENTS
PAGE
----
SECTION 1. INTRODUCTION................................................. 1
1.1. Establishment of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Annual Valuation Date
1.2.3. Beneficiary
1.2.4. Director
1.2.5. Event of Maturity
1.2.6. FAF
1.2.7 Investment Options
1.2.8. Plan
1.2.9. Plan Administrator
1.2.10. Plan Statement
1.2.11. Plan Year
1.2.12. Valuation Date
1.3. Rules of Interpretation
SECTION 2. PARTICIPATION................................................ 3
2.1. Participation
2.2. Enrollment
2.3. Revocation
2.4. Prior Years' Enrollments
SECTION 3. ADDITIONS TO ACCOUNTS........................................ 4
SECTION 4. ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS..................... 5
4.1. Establishment of Accounts
4.2. Valuation of Accounts
4.3. Adjustment of Accounts
SECTION 5. VESTING OF ACCOUNT........................................... 5
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SECTION 6. MATURITY..................................................... 5
6.1. Events of Maturity
6.2. Determination of Account
6.3. Effect of Maturity upon Further Participation in Plan
SECTION 7. DISTRIBUTION................................................. 6
7.1. Time of Distribution
7.1.1. Form of Distribution
7.1.2. Substantially Equal
7.1.3. Default
7.2. Designation of Beneficiaries
7.2.1. Right To Designate
7.2.2. Failure of Designation
7.2.3. Disclaimers by Beneficiaries
7.2.4. Definitions
7.2.5. Special Rules
7.2.6. No Spousal Rights
7.3. Death Prior to Full Distribution
7.4. Facility of Payment
SECTION 8. FUNDING OF PLAN.............................................. 10
8.1. Unfunded Agreement
8.2. Spendthrift Provision
SECTION 9. AMENDMENT AND TERMINATION.................................... 11
SECTION 10. DETERMINATIONS -- RULES AND REGULATIONS...................... 11
10.1. Determinations
10.2. Rules and Regulations
10.3. Method of Executing Instruments
10.4. Information Furnished by Directors
SECTION 11. PLAN ADMINISTRATION.......................................... 12
11.1. Administration
11.2. Establishment of Trust
SECTION 12. DISCLAIMERS.................................................. 12
SECTION 13. ADOPTION OF PLAN............................................. 12
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EXHIBIT A. FAF ADOPTING ENTITIES
FIRST AMERICAN FUNDS
DEFERRED COMPENSATION PLAN FOR DIRECTORS
SECTION 1
INTRODUCTION
1.1. ESTABLISHMENT OF PLAN. Effective January 1, 2000, the FAF existing on that date authorized the creation of a nonqualified, unfunded deferral plan for the purpose of allowing their Directors to defer the receipt of directors' fees which would otherwise have been paid to the Director. It is intended that income taxes otherwise applicable to the deferred amounts shall be deferred until distributions from this deferral plan are made in accordance with the Plan Statement. At the time of distribution, it is intended that the value of any distribution whether in cash or in-kind made to a director shall be treated as ordinary income. The FAF have reserved the power to amend and terminate this Plan Statement from time to time.
1.2. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the
unfunded and unsecured general obligation of the respective FAF established with
respect to each Director to which is credited the dollar amounts specified in
Section 3 and Section 4 and from which are subtracted payments made pursuant to
Section 6 and Section 7. To the extent necessary to accommodate different
distribution elections made pursuant to Section 2, the Account shall be
maintained as separate sub-accounts in sufficient number to accommodate each
such distribution election. The Plan Administrator shall be responsible to
establish and maintain the Accounts.
1.2.2. ANNUAL VALUATION DATE -- each December 31.
1.2.3. BENEFICIARY -- a person designated by a Director (or automatically by operation of this Plan Statement) to receive all or a part of the Director's Account in the event of the Director's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Director.
1.2.4. DIRECTOR -- an individual serving on the board of directors of any of the FAF who is not at the same time a common law employee of U.S. Bancorp or any of its affiliates or legal successors.
1.2.5. EVENT OF MATURITY -- any of the occurrences described in Section 6 by reason of which a Director or Beneficiary may become entitled to a distribution from the Plan.
1.2.6. FAF -- the corporate entities (and their legal successors in interest as applicable) which have adopted this Plan as indicated on Exhibit A attached hereto, which may be revised from time-to-time. Each corporate entity adopting this Plan shall be responsible only
for its respective obligations to the Directors. As the context requires, this term shall refer to either a single participating entity or to all participating entities.
1.2.7. INVESTMENT OPTIONS -- the certain classes of shares of the FAF which are open-end mutual funds designated by the Plan Administrator as the investment options under the Plan which determine the investment credit increases or decreases of the Accounts pursuant to Section 4.2 below.
1.2.8. PLAN -- the income deferral program maintained pursuant to this Plan Statement by the FAF and established for the benefit of Directors eligible to participate therein. (As used herein, "Plan" does not refer to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the "Plan Statement"). The Plan shall be referred to as the "FIRST AMERICAN FUNDS DEFERRED COMPENSATION PLAN FOR DIRECTORS."
1.2.9. PLAN ADMINISTRATOR -- The administrator of the plan shall be U.S. Bancorp Asset Management, Inc., a subsidiary of U.S. Bank National Association, or such other person or entity accepting such responsibility in writing pursuant to an authorized delegation by U.S. Bancorp Asset Management, Inc.
1.2.10. PLAN STATEMENT -- this document entitled "FIRST AMERICAN FUNDS DEFERRED COMPENSATION PLAN FOR DIRECTORS" effective as of January 1, 2000 as adopted by the boards of directors of the FAF existing on January 1, 2000, as the same may be amended from time to time thereafter.
1.2.11. PLAN YEAR -- the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.12. VALUATION DATE -- the Annual Valuation Date and each business day of the Plan Year.
1.3. RULES OF INTERPRETATION. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to this entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This document has been executed and delivered in the State of Minnesota and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of Minnesota.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each Director shall be a participant in the Plan with respect to a particular FAF as of the latter of (1) January 1, 2000; (2) the day on which such FAF adopts this Plan; or (3) the day on which he or she first becomes a Director of such FAF.
2.2. ENROLLMENT AND INVESTMENT ELECTION. Except as set forth in the following sentence, after the year in which this Plan first took effect, a Director may elect to enroll in the Plan for a given Plan Year only before the first day of that Plan Year. An individual who becomes a Director during a Plan Year (or less than 30 days before the start of a Plan Year) may elect to enroll in the Plan for that Plan Year only on or before the 30th day after he or she becomes a Director, and only if the individual has not previously participated in any other voluntary deferral plans of FAF. A Director may make an investment election at any time, but not more frequently than once every 90 days. An investment election shall apply to all future contributions and shall also apply to (i.e., it shall REBALANCE) any existing Account balance for the affected Director. Once made, the enrollment election shall be irrevocable for the remainder of the Plan Year with respect to which it is made. Once made, an investment election shall remain in effect until a new investment election is made. If a Director does not make a new investment election at the beginning of a subsequent Plan Year, his or her account shall be rebalanced on the first day of such Plan Year to the investment election then in effect. Each such enrollment and investment election, whether for the initial Plan Year (in the case of an enrollment) or minimum 90-day period (in the case of an investment election) or for a subsequent Plan Year (in the case of an enrollment) or minimum 90-day period (in the case of an investment election), shall designate in writing or such other electronically communicated means which has been sanctioned and expressly communicated by the Plan Administrator as an allowable means of enrollment and/or investment election, e.g., internet e-mail, voice response telephonic or other electronically communicated means to the extent such means are sanctioned by the Plan Administrator all of the following:
(a) in the case of such enrollment, the amount or portion of the
Director's annual retainer and meeting fees from all of the FAF in the
minimum aggregate annual amount of at least $10,000 as determined as
of a date specified by the Plan Administrator during the Plan Year
which shall not be paid to the Director in cash or in-kind in FAF
shares but instead shall be credited to this Plan under Section 3 and
Section 4 and distributed from this Plan under Section 6 and Section
7;
(b) in the case of such enrollment, the manner in which the amounts attributable to such credits shall be paid to the Director in accordance with Section 7; and
(c) in the case of such investment election, the percentages of the Director's Accounts to be invested in the available Investment Options.
2.3. EVERGREEN ELECTION/RE-BALANCING. Should a Director fail to make a subsequent enrollment and investment election following his or her initial election, the election in effect for the immediately prior Plan Year (in the case of enrollment) or minimum 90-day period (in the case of an investment election) shall continue in effect for the subsequent Plan Year or until changed, as the case may be. Directors' Account balances shall be rebalanced each time they make a new investment election and, if a new investment election is not made with respect to a new Plan Year, on the first day of such Plan Year, to reflect such new investment election in the former case and to reflect the then-existing investment election in the latter case.
2.4. REVOCATION. A Director's enrollment with respect to all deferrals under this Plan shall terminate upon the occurrence of the first of the following: (i) an Event of Maturity or (ii) the last day of the Plan Year in which the Director files a written revocation of the Director's enrollment.
2.5. RULES. Operational and procedural rules applicable to the investment election process shall be established by the Plan Administrator and communicated in Plan summaries provided to the Directors, operational forms or other means as deemed appropriate by the Plan Administrator.
SECTION 3
ADDITIONS TO ACCOUNTS
The applicable FAF entity shall credit to the Account of each Director such amount as the Director in his or her sole discretion shall have determined in accordance with Section 2.2. The amount shall be separately determined by each Director and need not be equal or bear a uniform relationship to the deferrals of other Directors. The amount so allocated to a Director shall be credited to such Director's Account as of the Valuation Date in the month for which it is made. Such crediting shall take place at the time and in the manner determined by the Plan Administrator.
SECTION 4
ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS
4.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each participant an unfunded bookkeeping Account with respect to each FAF for which the participant acts as Director, which shall be adjusted each Valuation Date.
4.2. VALUATION OF ACCOUNTS. The value of each Account shall be determined as of each Valuation Date (the "current Valuation Date"), which valuation shall reflect, as nearly as practicable, the effect of the applicable Investment Option(s) used to credit earnings (or losses) to the Account and the effect of any expenses charged to the Account.
4.3. ADJUSTMENT OF ACCOUNTS. The value of each Account shall be increased or decreased from time to time for distributions, contributions, crediting of reflective investment increases and decreases and expenses charged to the Account.
SECTION 5
VESTING OF ACCOUNT
The Account of each Director shall be fully (100%) vested at all times.
SECTION 6
MATURITY
6.1. EVENTS OF MATURITY. A Director's Account shall mature and become distributable in accordance with Section 7 upon the earliest to occur of any of the following events while serving as a Director of a FAF:
(a) his or her death, or
(b) his or her removal or resignation from the board of directors (and any officership which he or she holds) of all of the FAF entity for which he or she serves as Director, whether voluntary or involuntary, (which shall include his or her retirement from the board of directors of the applicable FAF entity) or
(c) termination of the Plan ; provided, however, that with respect to deferrals of directors' fees which are earned on and after January 1, 2005, a Director's Account shall become distributable upon termination of the Plan only if the Plan Administrator is advised by counsel that this is
consistent with then-existing interpretations of Section 409A of the Internal Revenue Code.
6.2. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the occurrence of
an Event of Maturity, a Director shall cease to have any interest in the Plan
other than the right to receive payment of his or her Account as provided in
Section 7 hereof, adjusted from time to time as provided in Section 4.
SECTION 7
DISTRIBUTION
7.1. TIME OF DISTRIBUTION. As soon as administratively feasible following the occurrence of an Event of Maturity effective as to a Director, the Plan Administrator shall commence payment of such Director's Account in the manner designated by the Director. The manner designated by the Director shall have been elected during the Director's initial enrollment or, if subsequently revised, as designated at least twelve months prior to a Director's Event of Maturity. If a Director submitted a change in his or her election as to the manner of distribution less than twelve months prior to the Director's Event of Maturity, the previous election shall control. In addition, with respect to deferrals of directors' fees which are earned on and after January 1, 2005, if a Director changes his or her designation of the manner of distribution, the first distribution shall be delayed at least five years from the Director's Event of Maturity.
7.1.1. FORM AND MANNER OF DISTRIBUTION. In accordance with a Director's written elections, distribution shall be made in cash and either:
(a) In a series of substantially equal annual installments payable over five years;
(b) In a series of substantially equal annual installments payable over ten years; or
(c) In a single, lump sum payment.
If a Director elects (a) or (b) above, he or she may continue to make and change investment elections as to the undistributed amount during the distribution period in the manner set forth in Section 2 hereof.
7.1.2. SUBSTANTIALLY EQUAL. Distributions shall be considered to be substantially equal if the amount of the distribution in a particular manner required to be made for each Plan Year (the "distribution year") is determined by dividing the remaining amount distributable in that manner as of the annual Valuation Date in the Plan Year immediately preceding the distribution year (such preceding Plan Year being the "valuation year") by the number of remaining installment payments to be made (including the distribution being determined).
7.1.3. DEFAULT. If for any reason a Director shall have failed to make a written designation and manner of distribution (including reasons entirely beyond the control of the Director), the distribution shall be made in a single lump sum during the January following the Director's Event of Maturity. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Director's selection of the manner of distribution.
7.2. DESIGNATION OF BENEFICIARIES.
7.2.1. RIGHT TO DESIGNATE. Each Director may designate, upon forms to be furnished by and filed with Plan Administrator, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Director's Account in the event of such Director's death. The Director may change or revoke any such designation at any time and from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Director and received by Plan Administrator during the Director's lifetime.
7.2.2. FAILURE OF DESIGNATION. If a Director:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Director,
such Director's Account, or the part thereof as to which such Director's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Director and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Director:
Director's surviving spouse
Director's surviving issue per stirpes and not per capita
Director's surviving parents
Director's surviving brothers and sisters
Representative of Director's estate.
7.2.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Director's Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Director's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is
disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Plan Administrator after the date of the Director's death but not later than one hundred eighty (180) days after the date of the Director's death. A disclaimer shall be irrevocable when delivered to the Plan Administrator. A disclaimer shall be considered to be delivered to the Plan Administrator only when actually received by the Plan Administrator. The Plan Administrator shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Director as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of the provisions of Section 8. The Plan Administrator shall recognize no other form of attempted disclaimer.
7.2.4. DEFINITIONS. When used herein and, unless the Director has otherwise specified in the Director's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Director.
7.2.5. SPECIAL RULES. Unless the Director has otherwise specified in the Director's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Director, it shall be deemed that the Beneficiary was not living at the time of the death of the Director.
(b) The automatic Beneficiaries specified in Section 7.2.2 and the Beneficiaries designated by the Director shall become fixed at the time of the Director's death so that, if a Beneficiary survives the Director but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Director designates as a Beneficiary the person who is the Director's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Director and such person shall automatically revoke such designation. (The foregoing shall not prevent the Director from designating a former spouse as a Beneficiary on a form executed by the Director and received by the Plan Administrator after the date of the legal termination of the marriage between the Director and such former spouse, and during the Director's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Director shall be given effect without regard to whether the relationship to the Director exists either then or at the Director's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Director shall be effective only to designate the person or persons standing in such relationship to the Director at the Director's death.
The Plan Administrator shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
7.2.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Director and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Director.
7.3. DEATH PRIOR TO FULL DISTRIBUTION. If a Director dies after an Event of Maturity but before distribution of such Director's Account has been completed, the remaining undistributed Account shall be distributed in the same manner as hereinbefore provided in Section 7.1. If, at the death of the Director, any payment to the Director was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which are payable to the Beneficiary (and shall not be paid to the Director's estate).
7.4. FACILITY OF PAYMENT. In case of the legal disability of a Director or Beneficiary entitled to receive any distribution under the Plan, payment shall be made, if the Plan Administrator shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such Director or Beneficiary, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled Director or Beneficiary, provided such person or institution has satisfied the Plan Administrator that the payment will be used for the best interest and assist in the care of such Director or Beneficiary, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such Director or Beneficiary.
Any payment made from the Director's Account in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of the applicable FAF entity therefor.
SECTION 8
FUNDING OF PLAN
8.1. UNFUNDED AGREEMENT. The obligation to pay the balance of an Account to a Director shall be solely and exclusively the obligation of the applicable FAF entity. Such obligation constitutes only the unsecured (but legally enforceable) promise of the applicable FAF entity to make such payments. The Director shall have no lien, prior claim or other security interest in any property of the FAF. The FAF may, but is not required to, establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund, trust or account is established, the property therein shall remain the sole and exclusive property of the FAF. Each FAF will pay its portion of the cost of this Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring each FAF's obligation to its Directors under this Plan and shall not be construed to impose on the FAF the obligation to create any separate fund for purposes of this Plan.
8.2. SPENDTHRIFT PROVISION. No Director or Beneficiary shall have any transmissible interest in any Account nor shall any Director or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the applicable FAF, nor shall any FAF recognize any assignment thereof, either in whole or in part, nor shall any Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the applicable FAF.
The power to designate Beneficiaries to receive the Account of a Director in the event of such Director's death shall not permit or be construed to permit such power or right to be exercised by the Director so as thereby to anticipate, pledge, mortgage or encumber such Director's Account or any part thereof, and any attempt of a Director so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the applicable FAF.
This section shall not prevent any FAF from exercising, in its discretion, any of the applicable powers and options granted to it upon the occurrence of an Event of Maturity, as such powers may be conferred upon it by any applicable provision hereof.
SECTION 9
AMENDMENT AND TERMINATION
The Boards of Directors of the FAF reserve the power to amend or terminate the Plan as applicable to any one or more of the FAF. Any amendment must either be adopted unanimously by all Boards of Directors of all of the FAF or, in lieu of unanimous approval, the Plan Administrator may adopt an amendment or terminate this Plan as applicable to any one or more of the FAF entities. No amendment or termination of the Plan, however, shall reduce a Director's Account earned as of the date of such amendment unless the Director so affected consents thereto in writing. A Director's Account earned as of the date of an amendment or termination shall be determined as if the Director had an Event of Maturity on that date.
SECTION 10
DETERMINATIONS -- RULES AND REGULATIONS
10.1. DETERMINATIONS. The Plan Administrator shall make such determinations as may be required from time to time in the administration of the Plan. The Plan Administrator, in its sole discretion, shall have the authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Directors and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Plan Administrator.
10.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by a FAF pursuant to any provision of this Plan Statement may be signed in the name of the FAF or the Plan Administrator by any officer or director thereof who has been authorized to make such certification or to give such notices or consents.
10.4. INFORMATION FURNISHED BY DIRECTORS. Neither the applicable FAF nor the Plan Administrator shall be liable or responsible for any error in the computation of the Account of a Director resulting from any misstatement of fact made by the Director, directly or indirectly, to such FAF, and used by it in determining the Director's Account. Neither the applicable FAF nor the Plan Administrator shall be obligated or required to increase the Account of such Director which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Director. However, the Account of any Director which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 11
PLAN ADMINISTRATION
The Plan Administrator is the person, entity or committee identified in Section
1.2.9. The functions generally assigned to the Plan Administrator shall be
discharged by the Plan Administrator or delegated and allocated to such other
person(s) authorized by the boards of directors of the FAF.
SECTION 12
DISCLAIMERS
Neither the terms of this Plan Statement nor the benefits hereunder nor the continuance thereof shall be an obligation of any Director. The FAF shall not be obliged to continue the Plan. The terms of this Plan Statement shall not give any Director the right to be retained on the boards of directors of the FAF. Neither the FAF nor any of their officers nor any member of their boards of directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Director or to any Beneficiary or to any creditor of a Director or a Beneficiary. Each Director, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of the FAF for such payments or to the Account distributed to any Director or Beneficiary, as the case may be, for such payments. In each case where an Account shall have been distributed to a former Director or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Director or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of the FAF. Neither the FAF nor any of their officers nor any member of their boards of directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of any FAF. The FAF and their officers and the members of their boards of directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
SECTION 13
ADOPTION OF PLAN
As documented by their authorized board resolutions adopting this Plan, the boards of directors of the FAF existing as of January 1, 2000 hereby adopt this Plan Statement effective as of January 1, 2000. Additional corporate entities may adopt this Plan with the documented approval of their boards of directors and the Plan Administrator.
EXHIBIT A
Effective January 1, 2000
Supplemented February 2005 and December 2007
FAF Adopting Entities:
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIRST AMERICAN FUNDS, INC.
FIRST AMERICAN STRATEGY FUNDS, INC.
AMERICAN STRATEGIC INCOME PORTFOLIO INC.
AMERICAN STRATEGIC INCOME PORTFOLIO INC.-II
AMERICAN STRATEGIC INCOME PORTFOLIO INC.-III
AMERICAN SELECT PORTFOLIO INC.
AMERICAN MUNICIPAL INCOME PORTFOLIO INC.
MINNESOTA MUNICIPAL INCOME PORTFOLIO INC.
AMERICAN INCOME FUND, INC.
FIRST AMERICAN MINNESOTA MUNICIPAL INCOME FUND II, INC.
MOUNT VERNON SECURITIES LENDING TRUST
EXHIBIT D
TO CUSTODIAN AGREEMENT
EFFECTIVE DECEMBER 5, 2007
FEE SCHEDULE
Each series of the First American Investment Funds, Inc., as now in existence or hereafter created from time to time, other than International Fund, International Select Fund, and Global Infrastructure Fund shall pay to the Custodian a monthly fee at an annual rate of 0.005% of the average daily net assets of such series.
FIRST AMERICAN INVESTMENT FUNDS, INC.
800 NICOLLET MALL
MINNEAPOLIS, MN 55402
December 6, 2007
State Street Bank and Trust Company
2 Avenue de Lafayette, LCC/5
Boston, MA 02111
Attention: William M. Marvin, Vice President
Re: GLOBAL INFRASTRUCTURE FUND
Ladies and Gentlemen:
Please be advised that the undersigned First American Investment Funds, Inc. (the "Fund") has established a new series of shares to be known as the Global Infrastructure Fund. In accordance with Section 18.5, the Additional Funds provision, of the Custodian Agreement dated as of July 1, 2005 (the "Custodian Agreement"), by and between the Fund and State Street Bank and Trust Company (the "Custodian"), the Fund hereby requests that you act as Custodian for the aforementioned series under the terms of the Custodian Agreement.
Kindly indicate your acceptance of the foregoing by executing two copies of this letter agreement, returning one to the Fund and retaining one for your records.
Sincerely,
FIRST AMERICAN INVESTMENT FUNDS, INC.
on behalf of:
Global Infrastructure Fund
By: /s/ Charles D. Gariboldi, Jr.
------------------------------------
Name: Charles D. Gariboldi, Jr.
Title: Treasurer Duly Authorized
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Agreed and Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Darin McInnis
---------------------------------
Name: Darin McInnis
Title: Assistant Vice President
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Effective Date: December 6, 2007
GLOBAL SECURITIES LENDING SUPPLEMENT
In addition to the provisions of the securities lending agreement dated as of the 1st day of January, 2007 ("Agreement") pursuant to which First American Investment Funds, Inc. ("Customer") has appointed U.S. Bank National Association ("Bank") as its agent to lend securities in the Customer's custody account and to perform related activities, the following global securities lending supplemental ("Supplement") provisions shall apply to loans involving Securities held by the portfolios of the Customer as set forth on Schedule A, which may be amended from time to time.
1. Definitions
For purposes hereof, the following terms shall have the meanings ascribed below:
"Approved Investment" shall mean the investment of Cash Collateral in accordance with any directions, including any limitations established by the Customer and set forth on Schedule B.
"Borrower" shall mean those entities which have entered into agreements with the Bank, or in the event the Bank has retained a Lending Subagent, with the Lending Subagent, in each case in substantially the same form of Borrower Agreement(s), as referenced in Section 3(a) of the Agreement.
"Collateral Requirement" shall mean with respect to Loans pursuant to this Supplement, the following percentage of the Market Value of Loaned Securities as of the close of trading on the preceding Business Day, (a) 105% when the Loaned Securities and the Collateral or Non-U.S. Collateral delivered in connection therewith are denominated in different currencies, or (b) 102% when the Loaned Securities and the Collateral or Non-U.S. Collateral delivered in connection therewith are denominated in the same currency.
"Custodian" shall mean a bank or financial institution (other than a Depository) which is utilized by Customer pursuant to a separate custody agreement in connection with the receipt, delivery and custody of Securities, Non-U.S. Securities, Collateral and Non-U.S. Collateral.
"Depository" for purposes hereof, shall be any depository or clearing agency (and their respective successors and nominees) organized under the laws of the United States (including but not limited to Depository Trust Company) and countries other than the United States and operating outside the United States (including but not limited to Euroclear and Clearstream) which is authorized to act as a securities depository or clearing agency.
"Lending Agent" shall mean the Bank or, in the event the Bank has retained a lending subagent, as provided by Section 2(c) herein, the Lending Subagent.
"Lending Subagent" shall mean a financial institution the Bank determines to be necessary or desirable to perform securities lending on behalf of the Customer.
"Loaned Securities" shall be those Securities which are loaned to the Borrower(s) by the Lending Agent, securities identical to such Securities, or securities equivalent to such loaned securities in the event of a reorganization, recapitalization or merger affecting the originally loaned securities.
"Non-U.S. Cash Collateral" shall mean (a) monies in the currencies in which the loaned Non-U.S. Securities are traded in the principle market therefor, (b) monies in the official currency of any member country of the OECD, and (c) monies in such other currencies as may be agreed by the Customer (and which are acceptable to the Lending Agent); whether in the form of cash, credits of immediately available funds to the Lending Agent's account at a clearing organization or represented by a certified or bank draft payable to the order of the Lending Agent as agent for the Customer.
"Non-U.S. Collateral" shall mean Non-U.S. Cash Collateral and debt obligations issued and sold primarily outside the United States by the central government of any OECD country or any agency or instrumentality thereof.
"Non-U.S. Security" shall include, without limitation, securities issued and sold primarily outside the United States by the central government of any country or any agency or instrumentality thereof or a corporation or other entity incorporated or organized under the laws of any country outside of the United States, and any certificates, warrants or other instruments representing rights to receive, purchase, or subscribe for the same, or evidencing or representing any other rights or interests therein.
"OECD" shall mean the Organization for Economic Cooperation and Development.
All capitalized terms not defined herein shall have the meanings given them in the Agreement.
2. Authorizations
(a) Authorization. The Customer hereby authorizes the Lending Agent to make Loans pursuant to the parameters set forth in the Borrower Agreement(s).
(b) Use of Depositories and Custodian. The Customer hereby authorizes the Lending Agent on a continuous and on-going basis to deposit, directly or through a Custodian, in the appropriate Depositories all Securities, Non-U.S. Securities and Collateral eligible for deposit therein and to utilize the Depositories to the extent possible in connection with its receipt and delivery of Securities, Non-U.S. Securities, Collateral, Non-U.S. Collateral and monies pursuant to this Supplement. Where Securities, Non-U.S. Securities, Collateral and Non-U.S. Collateral eligible for deposit in a Depository are transferred to a custody account, the Lending Agent shall identify as belonging to the Customer a quantity of securities in a fungible bulk of securities shown on the Lending Agent's account on the books of the appropriate Depository, or on the books of a Custodian. Non-U.S. Securities and Collateral deposited in a Depository, either directly or through a Custodian will be represented in accounts which include only assets held by the relevant
Custodian for customers, including, but not limited to, accounts in which the Lending Agent or such Custodian acts in a fiduciary or agency capacity.
(c) Use of Securities Lending Subagents. The Customer hereby authorizes the Bank to use the securities lending services of State Street Bank and Trust Company, as agents of the Bank, for the benefit of the Customer, as the Bank in its discretion shall determine to be necessary or desirable to perform securities lending on behalf of the Customer pursuant to this Supplement.
3. Securities Lending Transactions
(a) Receipt of Collateral; Approved Investments. Upon entering Loans, the Lending Agent shall receive all Collateral and in accordance with the Borrower Agreement in such amount that the Market Value of such Collateral is not less than the Collateral Requirement. Subject to Schedule A hereto and any restrictions set forth by the Customer, the Lending Agent is hereby authorized and directed to invest and reinvest all or substantially all of the Collateral represented by Cash Collateral and Non-U.S. Cash Collateral in any Approved Investment.
(b) Distributions on Loaned Securities. Unless otherwise agreed, cash distributions paid on Loaned Securities which are Non-U.S. Securities shall be credited to the Customer's custody account in the currency in which such distributions are paid on the Business Day following receipt from the Borrower.
(c) Receipt of Non-cash Collateral. To the extent that a Loan is secured by non-cash Collateral, the Borrower shall be required to pay a loan premium, the amount of which shall be negotiated by the Lending Agent. Such loan premium shall be allocated between the Lending Agent and the Customer as follows: (a) a portion of such loan premium shall be paid to the Lending Agent as compensation for its services in connection with this securities lending program, in accordance with Schedule C hereto; and (b) the remainder of such loan premium shall be credited to the Customer's custody account.
(d) Marks to Market. The Lending Agent shall on each Business Day Mark to Market the value of all Loaned Securities and demand from the appropriate Borrowers additional Collateral or Non-U.S. Collateral when the Market Value of Collateral and Non-U.S. Collateral received by the Lending Agent from such Borrowers is less than the then current Market Value of all of the Loaned Securities (a "Margin Deficit"). Notwithstanding the foregoing, Customer agrees that the Lending Agent may exercise its right to demand additional Collateral or Non-U.S. Collateral from Borrowers only where a Margin Deficit exceeds a specified amount or specified percentage of the Market Value of the Loaned Securities determined by the Lending Agent to be immaterial (but at all times consistent with generally accepted industry practices). Whenever the Lending Agent demands additional Collateral or Non-U.S. Collateral pursuant to the foregoing, such additional Collateral or Non-U.S. Collateral, together with the Collateral and Non-U.S. Collateral then held by the Lending Agent in connection with Loans, shall have a Market Value of not less than the Collateral Requirement.
(e) Collateral Substitutions. The Lending Agent shall accept substitutions of Collateral and Non-U.S. Collateral in accordance with the Borrower Agreement.
(f) Foreign Exchange. When necessary, the Lending Agent is authorized or directed by the Customer to convert currency received hereunder into other currency, and the Lending Agent shall effect such transactions through customary banking channels whenever it is practicable to do so. All expenses and risks incident to such conversions shall be borne by the Customer, and the Lending Agent shall have no responsibility for the fluctuation in exchange rates affecting such conversions.
(g) Miscellaneous. The provisions of this Supplement shall apply solely with respect to Loaned Securities hereunder. All provisions of the Agreement shall nevertheless remain in full force and effect with respect to Loaned Securities pursuant to this Supplement including, without limitation Section 12 of the Agreement relating to indemnification; provided, that in the event of any conflict between the provisions of the Agreement and the provisions of this Supplement, the provisions of this Supplement shall control.
4. Depositories, Custodians and Lending Subagents
(a) Depository. Bank shall have no responsibility or liability whatsoever for the actions or omissions of any Depository.
(b) Custodian. Bank shall have no responsibility or liability whatsoever for the actions or omissions of any Custodian.
(c) Lending Subagents. The Bank shall use reasonable care in the performance of its duties hereunder consistent with that exercised by banks generally (i) in the performance of duties arising from acting as Lending Agent for clients in securities lending transactions (which includes, but is not limited to, oversight of any Lending Subagent(s) activities and the approval of Borrowers not otherwise listed on Exhibit A of the Agreement); (ii) and, if applicable, in the selection and retention of the Lending Subagent(s). The Bank shall remain liable to the Customer for the acts and omissions of any Lending Subagent to the same extent as if Bank had committed such acts and omissions itself, regardless of whether Bank selected such Lending Subagent with due care.
(d) Notwithstanding any express provision to the contrary herein, Bank shall not be liable for any indirect, consequential, incidental, special or exemplary damages, even if Bank has been apprised of the likelihood of such damages occurring. The Bank does not assume any market or investment risk of loss with respect to the investment of Cash Collateral and Non-U.S. Cash Collateral. If the value of the Cash Collateral and Non-U.S. Cash Collateral so invested is insufficient to return any and all other amounts due to a Borrower pursuant to the Borrower Agreement, the Customer shall be responsible for such shortfall as set forth in the Agreement.
(e) Miscellaneous. The Customer acknowledges that in the event that its participation in securities lending generates income for the Customer, the Lending Agent may be required to withhold tax or may claim such tax from the Customer as is appropriate in accordance with applicable law. The Lending Agent, in determining the Market Value of Securities, including without limitation, Collateral, may rely upon any recognized pricing service and shall not be liable
for any errors made by such service. Bank may charge any amounts to which it is entitled hereunder against the Customer's custody account.
5. Fees; Fee Disclosure
The Customer shall pay fees to Bank in the amount and at such times set forth on Schedule C attached hereto and made a part hereof as though fully set forth herein. The provisions of Schedule C may be renegotiated at any time upon five days written notice by either party hereto and may be amended by a separate writing between Bank and Customer. The Bank shall charge such fees against the Net Income; provided, however, that if not so charged, the Customer shall pay such fees.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first above written.
First American Investment Funds, Inc.
By: /s/ Charles D. Gariboldi, Jr.
---------------------------------
Title: Treasurer
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U.S. Bank National Association
By: /s/ Emil C. Busse, Jr
---------------------------------
Title: Managing Director, Securities
Lending
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Schedule A
The Portfolios of First American Investment Funds, Inc. to which the Global Securities Lending Supplement applies:
Portfolio Name Taxpayer Identification Number Tax Year-End International Fund 23-2753731 10/31 International Select Fund 38-3743135 10/31 Global Infrastructure Fund 61-1540686 10/31 |
Schedule B
For purposes of the Supplement, "Approved Investment" means: (a) if
State Street Bank and Trust Company is acting as Lending Subagent pursuant to
Section 2(c) of the Supplement, only State Street Navigator Securities Lending
Trust -- Prime Portfolio*; and (b) otherwise, only the Selected Series. Customer
hereby represents that:
(i) its policies permit it to purchase shares of the State Street Navigator Securities Lending Trust -- Prime Portfolio with Cash Collateral; and
(ii) its participation in a securities lending program, including the investment of Cash Collateral in the State Street Navigator Securities Lending Trust, and the existing series thereof has been approved by a majority of the directors or trustees which directors and trustees are not "interested persons" within the meaning of section 2(a)(19) of the Investment Company Act of 1940, and such directors or trustees will evaluate the securities lending program not less frequently than annually to determine that the investment of Cash Collateral in the State Street Navigator Securities Lending Trust, including any series thereof, is in the Customer's best interest.
* The State Street Navigator Securities Lending Trust -- Prime Portfolio is a money market fund operating pursuant to Rule 2a-7 under the 1940 Act.
Schedule C
This Schedule is attached to and made part of the Global Securities Lending Supplement, dated the 1st day of January 2007 between the Customer and the Bank.
Schedule of Fees
1. Subject to Paragraph 2 below, all Net Income collected by Bank shall be allocated as follows:
o Seventy-five percent (75%) payable to the Customer; and
o Twenty-five percent (25%) payable to Bank*.
2. All payments to be allocated under Paragraph 1 above shall be made after the deduction of such other amounts payable to Bank, Lending Subagent, Custodian or to the Borrower(s) under the terms of the Agreement including this Supplement.
* The Bank has negotiated an agreement with State Street Bank and Trust Company for State Street Bank and Trust Company to serve as the Lending Subagent hereunder. Under the terms of that agreement the Bank has agreed to pay State Street Bank and Trust Company a percentage of the Bank's 25% of Net Income fee, which percentage has been disclosed to the Customer's Board of Directors.
DORSEY & WHITNEY LLP
SUITE 1500
50 SOUTH SIXTH STREET
MINNEAPOLIS, MINNESOTA 55402
December 17, 2007
First American Investment Funds, Inc.
800 Nicollet Mall
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to First American Investment Funds, Inc., a Maryland corporation (the "Company"), in rendering the opinion hereinafter set forth with respect to the authorization of the classes and series of the Company's common shares, par value $0.0001 per share, which are identified in Exhibit A to this opinion letter, which are also known by the names set forth opposite their respective class and series designations in Exhibit A. The shares of the Company identified in Exhibit A are referred to herein collectively as the "Shares."
We understand that the Shares are being registered under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, pursuant to the Company's Registration Statement on Form N-1A (File No. 33-16905) relating to such shares (the "Registration Statement"). In rendering the opinion hereinafter expressed, we have reviewed the corporate proceedings taken by the Company in connection with the authorization and issuance of the Shares, and we have reviewed such questions of law and examined copies of such corporate records of the Company, certificates of public officials and of responsible officers of the Company, and other documents as we have deemed necessary as a basis for such opinion. As to the various matters of fact material to such opinion, we have, when such facts were not independently established, relied to the extent we deemed proper on certificates of public officials and of responsible officers of the Company. In connection with such review and examination, we have assumed that all copies of documents provided to us conform to the originals and that all signatures are genuine.
In addition, in rendering the opinion hereinafter expressed, we have assumed, with the concurrence of the Company, that all of the Shares will be issued and sold upon the terms and in the manner set forth in the Registration Statement; that the Company will not issue Shares in excess of the numbers authorized in the Company's articles of incorporation as in effect at the respective dates of issuance; and that the Company will maintain its corporate existence and good standing under the laws of the State of Maryland in effect at all times after the date of this opinion.
Based on the foregoing, it is our opinion that the Shares issued from and after the date hereof, when issued and delivered by the Company as described in the Registration Statement, will be legally issued and fully paid and non-assessable.
In rendering the foregoing opinion, we express no opinion as to the laws of any jurisdiction other than the State of Maryland. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement.
Very truly yours,
/s/ Dorsey & Whitney LLP
JDA
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Exhibit A to December 17, 2007 Dorsey & Whitney Opinion Letter to First American Investment Funds, Inc.
Designation of Shares in Articles of Incorporation or Articles Supplementary Name -------------------------- ---- Class KKK Common Shares............................. Global Infrastructure Fund, Class A Class KKK, Series 2 Common Shares................... Global Infrastructure Fund, Class Y |
FIRST AMERICAN INVESTMENT FUNDS, INC.
Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3
Effective December 5, 2007
I. PREAMBLE.
Each of the funds listed below (each a "Fund," and collectively the "Funds"), each a portfolio of First American Investment Funds, Inc. (the "Company"), has elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act") in offering multiple classes of shares in each Fund:
Arizona Tax Free Fund
Balanced Fund
California Intermediate Tax Free Fund
California Tax Free Fund
Colorado Intermediate Tax Free Fund
Colorado Tax Free Fund
Core Bond Fund
Equity Income Fund
Equity Index Fund
Global Infrastructure Fund
High Income Bond Fund
Inflation Protected Securities Fund
Intermediate Government Bond Fund
Intermediate Tax Free Fund
Intermediate Term Bond Fund
International Fund
International Select Fund
Large Cap Growth Opportunities Fund
Large Cap Select Fund
Large Cap Value Fund
Mid Cap Growth Opportunities Fund
Mid Cap Index Fund
Mid Cap Value Fund
Minnesota Intermediate Tax Free Fund
Minnesota Tax Free Fund
Missouri Tax Free Fund
Nebraska Tax Free Fund
Ohio Tax Free Fund
Oregon Intermediate Tax Free Fund
Quantitative Large Cap Core Fund
Quantitative Large Cap Value Fund
Quantitative Large Cap Growth Fund
Real Estate Securities Fund
Short Tax Free Fund
Short Term Bond Fund
Small Cap Growth Opportunities Fund
Small Cap Index Fund
Small Cap Select Fund
Small Cap Value Fund
Small-Mid Cap Core Fund
Tax Free Fund
Total Return Bond Fund
U.S. Government Mortgage Fund
This Plan sets forth the differences among classes of shares of the Funds, including distribution arrangements, shareholder services, expense allocations, conversion and exchange options, and voting rights.
II. ATTRIBUTES OF SHARE CLASSES.
The attributes of each existing class of the existing Funds (i.e. Class A, Class B, Class C, Class R and Class Y shares), with respect to distribution arrangements, shareholder services,
transfer agency services, recordkeeping services, and conversion and exchange options shall be as set forth in the following materials:
A. The Prospectuses of the various share classes of the respective Funds in the forms most recently filed with the Securities and Exchange Commission (the "SEC") prior to the date of this Plan as amended.
B. Statements of Additional Information of the respective Funds in the forms most recently filed with the SEC prior to the date of this Plan as amended
C. First American Investment Funds, Inc. Amended and Restated Distribution and Service Plan effective September 19, 2006.
D. Administration Agreement with FAF Advisors, Inc. dated July 1, 2006.
E. Transfer Agency Agreement with U.S. Bancorp Fund Services and FAF Advisors dated September 19, 2006.
Expenses of such existing classes of the Funds shall continue to be allocated in the manner set forth in III below. Each such existing class shall have exclusive voting rights on any matter submitted to shareholders that relates solely to its arrangement and shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class.
III. EXPENSE ALLOCATIONS.
Expenses of the existing classes of the existing Funds shall be allocated as follows:
A. Distribution fees, service fees, transfer agency fees and recordkeeping fees relating to the respective classes of shares, as set forth in the materials referred to in II above, shall be borne exclusively by the classes of shares to which they relate.
B. Except as set forth in A above, expenses of the Funds shall be borne at the Fund level and shall not be allocated on a class basis.
Unless and until this Plan is amended to provide otherwise, the methodology and procedures for allocating income, realized gains and losses, unrealized appreciation and depreciation, and Fund-wide expenses shall be based on the net assets of each class in relation to the net assets of the company ("relative net assets") as set forth in Rule 18f-3(c)(1)(i).
The foregoing allocations shall in all cases be made in a manner consistent with Revenue Procedure 96-47 (Internal Revenue Code, Section 562) of the Internal Revenue Service.
IV. AMENDMENT OF PLAN; PERIODIC REVIEW.
A. New Funds and New Classes. With respect to any new portfolio of the Company created after the date of this Plan and any new class of shares of the existing Funds created after the date of this Plan, the Board of Directors of the Company shall approve amendments to this Plan setting forth the attributes of the classes of shares of such new portfolio or of such new class of shares.
B. Material Amendments and Periodic Reviews. The Board of Directors of the Company, including a majority of the independent directors, shall periodically review this Plan for its continued appropriateness and shall approve any material amendment of this Plan as it relates to any class of any Fund covered by this Plan.